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Posted on Saturday, December 09, 2000 - 12:17 pm:   

A messy wrangle over a ship conversion is the latest crisis to hit the once great shipyard. Oliver Morgan reports


Sunday December 3, 2000

Wanted: one bow and one stern for incomplete 26,000-tonne cruise ship. Please deliver to Cammell Laird, Birkenhead Shipyard, Merseyside.

It sounds farcical, but it is no more so than surreal pictures showing a 13-deck hulk, intended to be the mid-section of an Italian vessel, listing like an amputee in Birkenhead's docks.

The proposed bow and stern - AKA the cruise ship Costa Classica - were supposed to arrive in one piece at Birkenhead on 23 November, ready to be cut in half and welded to either end of the mid-section. However, a day before arrival the Classica's owners, Italian cruise line Costa Crociere, ordered her to return to Italy. A more absurd comedy of errors could scarcely have been scripted.

But here the comedy ends.

The fiasco piles further ignominy on a once-great company. Compare the pathetic sight of the orphaned ship's belly with the famous images of HMS Ark Royal towering over post-war Merseyside terraces - when Britain accounted for 38 per cent of the world merchant market rather than the 1 per cent of today.

More worrying is that at more than 80 million the Classica contract is the biggest item on Cammell's order book, and the only significant work for Birkenhead.

Cammell faces a cash-flow headache - it has spent £40m, but will not receive a penny until the matter is resolved. Deputy chief executive Brett Martin says without the 'critical mass' from the contract, hundreds of jobs could be lost.

Moreover the débacle poses a question over a strategy that has seen Cammell rise from the corporate dead.

Like other once-proud yards, Cammell declined after the war as competition from Far Eastern and European yards undermined its competitiveness. Financial failure, nationalisation, then re-privatisation under the wing of naval shipbuilder VSEL preceded the company's final demise in 1993.

Today's Cammell re-opened in the same year and is a very different business - employing a tenth of the 25,000 UK workforce of its heyday. Like other UK yards it has abandoned the cut-throat market of tankers and, until recently, passenger ships.

Instead it has shifted to repair and conversion - gaining margins of about 15 per cent compared with the 5 per cent for new ships. This has led to yard acquisitions from France to Oregon, rising profits - £0.7m in 1996, £15.9m this year - and market capitalisation - £22m in 1997, reaching a £300m peak before falling to around £100m now.

However, as the Costa fiasco demonstrates, arguments over contracts for these conversions are now as threatening as poor management and industrial relations were previously. Pressures are growing as competition among the world's leading cruise lines intensifies. Companies such as Costa Crociere - owned by Miami-based giant Carnival Cruises - must keep ships at sea longer, turn repairs around more quickly and satisfy ever-more demanding passengers.

Nick Grainger, of the UK Ship Builders and Ship Repairers Association, says: 'Cruise operators must balance when they take ships in for refits with maintaining their service to customers. Some of those customers, particularly US ones, are litigious, so rescheduling can be very expensive.'

The Costa contract is the biggest and one of the most complex conversions ever undertaken. The present stand-off is the culmination of intricate manoeuvrings between Costa, desperate to have a bigger ship ready on time, and Cammell, desperate to deliver.

Costa says it is not satisfied that Cammell can complete on time and to specification, and that it may be due compensation. It wants these issues resolved before returning the Classica to Merseyside. It has not yet terminated the deal - it is seeking arbitration from an Italian legal professor.

Company spokesman Luigi Norsa told The Observer that the original contract, signed in September 1999, stated that all work had to be completed by 22 March 2001.

He added that by the time the Classica arrived at Birkenhead all work on the section had to be completed and tested. This had not happened - as Cammell concedes.

Norsa said Costa raised concerns last March about timely completion. Two technical reports from marine consultant Brookes Bell - one on 21 August, one on 4 October - advised on progress and whether the 22 March deadline could be met.

Costa says the reports detailed problems causing delays, as Cammell admitted to The Observer. However, Costa conceded that Brookes Bell said if action were taken, the March deadline could be met. Costa contends that that action has not been taken.

Cammell's operations director John Syvret disagrees. A key factor, he says, is that in December 1999, Costa varied the contract to place machinery in lower compartments rather than water and ballast.

'That was a major change,' says Syvret. It meant costs increased, but Cammell guaranteed crucially that both the weight and the 22 March deadline would not vary. Syvret says the project was rescheduled, which meant some work on the section being completed after the Classica arrived, in parallel with integration.

Martin says: 'Their attitude still baffles me. If they did not believe we could deliver, why did they leave Genoa and turn back a day before they reached us?'

Cammell and union officials have questioned whether timing was the stumbling block. One Cammell official said that 'when the original deal was signed Costa Crociere was jointly owned by Carnival and Airtours. Carnival later bought the majority. Carnival prefers new ships rather than conversions'.

A union official suggested the company may have been pressurised by the Italian government to do the work in Italian yards. Another union official said: 'We have heard Costa has problems with another vessel, the Costa Riviera. We are worried that they would rather enter arbitration with Cammell Laird than have to reschedule cruises, and pay compensation.'

Costa Crociere disputes this, along with rumours about the Italian government. Norsa said: 'Costa Riviera is undergoing planned work in dry dock. She went in on 17 November, and is due out on 17 December. There is no link with the Classica.'

But if the Classica does put to sea in the near future a row beckons that could add a political dimension to what the UK Government insists is a commercial dispute.

Unions are watching closely. The position for the 1,000 workers is precarious. But there is hope - ironically from the market for new-build passenger ships, which Britain exited after the last contract, a P&O ferry, was completed at Govan in 1987.

Figures from GP Wild show £21.3 billion of known contracts for new-build - the majority spread around four European yards. There is no British presence.

Cammell is, however, hoping to secure a deal to build two 28,000-tonne ships for US-based Luxus. A deal would make additional smaller contracts viable.

The GMB's Charlie Leonard says Cammell has refitting on three ships including a Stena ferry - dependent on the workforce staying.

Political considerations are paramount. Luxus will only proceed if Trade Secretary Stephen Byers agrees to a 9 per cent aid package and an 80 per cent mortgage guarantee permissible under EU rules. Byers has until the end of the year to agree - the EU regulations are being scrapped then. Even if there is no immediate resolution with Costa, work on the Luxus ships could start early next year, meaning lay-offs could be temporary.

Nevertheless, none of the players in this drama is likely to emerge happy - a messy arbitration will not only harm relations between Cammell and a powerful customer, but could contribute to increased europhobia in this country. Byers, however, faces Tory taunts of propping up another failing industry.

But with an election looming and 'heartland' jobs at a premium, the smart money is on Byers throwing another lifeline to UK manufacturing. And that would mean a dignified end to a demeaning farce.

Industry sails into a specialist future

If you had asked an Irishman in Birkenhead last week (and there were a few) how to build a ship, he might have looked out over the water and said: 'I wouldn't start from here.'

But the techniques used to extend the Costa Classica reflect the realities of modern shipbuilding, where UK builders complain of Koreans building supertankers at below cost and surreptitious subsidies slipping into the back pockets of European yards.

Conversion may seem a weird way to build a ship, but the market has the hallmarks of a haven for ex-growth, high-cost producers - it is niche and it is highly skilled. Figures for 1999 from consultant GP Wild show a market worth more than $250million. Small by new-build standards but large by the standards of UK order books. In 1999 the lion's share went to Italian, German and Singaporean yards, but this year the $88.4m Costa Classica deal puts Cammell Laird on top of the heap.

There are nuttier schemes still. If our Irishman crossed the Pennines to Swan Hunter's Tyneside yard, he would see the idea a stage further on.

There, Swan's Dutch owner Jaap Kroese believes his yard can survive using state of the art machinery to carry out high-value work - for example on technical vessels for offshore industries.

The Kroese line reaches its apotheosis in his idea of 'flat-pack' ships. Using computer-guided machinery, ship sections and components can be pre-cut, packaged and sent to customers anywhere in the world. He estimates a quarter of costs will go, and delivery times will be slashed too.

While he believes high value work will suit the yard best, he is bold enough to believe this kind of technology could lead to taking on the Koreans again.

Old hands may scoff. But while the aircraft carriers have gone, the 'Airfix kit' has come of age.

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