Financial Times

CDL to move into heavy engineering

By Duruthu Edirimuni Chandrasekera

Colombo Dockyard PLC (CDL) is considering separating its heavy engineering unit and to combine it with its subsidiary, Dockyard General Engineering Services in a bid to capitalize on work connected to rehabilitation efforts in the North and the East, according to officials.

“We are looking at harnessing our business in these areas and capitalising on the peace dividend after the war. There are massive rehabilitation projects with potential opportunities such as bridges, power plants, steel towers, windmills, steel work support services for highways and also the petrochemicals industry that our heavy engineering unit can handle,” Mangala Yapa, Managing Director CDL told the Sunday Times FT.

He said there is a lot of ‘debate and discussion’ (by the company’s director board) on whether CDL should expand as the country’s economy is set to take off. “With this peace dividend there are many places to expand in, such as Colombo, Hambantota, etc. But we are carefully analyzing the options. We have not yet come to any conclusions, but we certainly are looking at the possibilities,” he explained.
“We are evaluating business opportunities and how to make them work. We will come out with the best approach in this regard,” he further said.

He said the next quarter’s performance will be dependent on the integral cost component of both CDL’s ship repair and ship building business. Mr. Yapa said there was a boom in the shipping industry, but now it is in a recession. He noted that the ship building and ship repair industry is a cyclical industry and the demand for the above two sectors is mainly driven by the rapidly rising world trade and the need to scrap old vessels.

Industry analysts said that the global economic situation is likely to have a reasonable bearing on the industry although the impact on the local industry is comparatively lower due to its smaller size. “Most shipyards (in the world) are facing cancellation in orders and also a drop in revenue. The industry moves with international trade and with the present slack in trade the industry is also somewhat stagnant. CDL saw the potential dip from early on and our marketing was focussed (and not aggressive),” Mr. Yapa pointed out, adding that CDL only went for projects with clients who had the potential to pay.

“Many shipyards around the world tried to cut corners and deliver the ships faster (to the client). They did not pay much attention to quality, but we relied on our core strengths – proper designs and realistic delivery dates. This is why we have continued to grow as opposed to others,” he said. The major players in the global ship building industry are Korea, Japan, EU and China of which Japan and Korea alone account for approximately 70% of the total world output in the ship building industry.

Mr. Yapa said CDL’s ship repair businesses are mainly channeled through India, while shipbuilding is getting a ‘little interest’ now from Singapore. The company’s order book for the shipbuilding segment and ship repair segment is full till 2012.

Analysts say that ship repair, offshore engineering, and heavy engineering segments would mitigate the risk of a downturn in the ship building industry and that CDL’s business development focus has brought the company many clients and new markets, while capacity enhancement and infrastructure development saw the company on par with any other international yard.

“Now we are focusing on the people aspect as it is a labour intensive industry. Especially during this recession time, we are focusing on employee attitude, skills and competencies.”

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