By Matthew Flynn, Managing Director, Worldyards.com Pte Ltd.

In November 2006, the Organisation for Economic Co-operation and Development published a new set of rules for computing compensated gross tons, effective 1st January, 2007. (For these document, please note the following link: (http://www.oecd.org/dataoecd/59/49/37655301.pdf)

This article introduces the logic of the new computations and advances a detailed reference table for its application.
The basic definition of compensated gross tonnage remains unchanged since its first introduction in the late 1960s.

“Compensated gross tonnage (cgt) is a unit of measurement intended to provide a common yardstick
to reflect the relative output of merchant shipbuilding activity in large aggregates such as ‘World’,
‘Regions’, or ‘Groups of Many Yards.’ ”

The question of alternative aggregate capacity measures, other than deadweight and gross tonnage, was first tabled at 1966 and 1967 meetings between the Community of European Shipyards Associations - CESA (at that time named the Association of West European Shipbuilders - AWES) and the Shipbuilders' Association of Japan - the SAJ.  A joint system for calculating compensated gross tonnage (cgt) was introduced by the associations in 1968, and this was subsequently adopted and promulgated by the OECD, with substantive revisions in 1984, 1994, and 2007.

This 2007 version was jointly introduced by the Community of European Shipyards Associations, the Shipbuilders’ Association of Japan, and the Korean Shipbuilders’ Association, but without the participation of China, Vietnam, and India.

The new system is essentially the same as the previous version in terms of segmentation of ship types. The new system eliminates the category of single hull crude oil tanker, and the resulting menu is 15 ship types. Product tankers are now grouped with crude oil tankers rather than chemical tankers.

In mathematical terms, the major difference is that under the old system the ship’s gross tonnage was multiplied by a coefficient that was different according to the size of the vessel.

For example, bulk carriers in the deadweight bracket of 4,000 to 10,000 would have a cgt based on the ship’s gt multiplied by a factor of 1.10, but for a vessel of 10,000 to 30,000 dwt the factor would decline to 0.70. The simple logic is that as any newbuilding gets bigger, they take less input to complete each measure of output (dwt, gt, or cbm).

As OECD explained, a simple factor measurement system had shortcomings: “An inevitable consequence of the step function approach was that for ships with a tonnage near the size boundaries - particularly for smaller ships - this produced some inaccuracies. For example, the calculated cgt of a passenger vessel with a planned size of 9,950 gt, delivered with a tonnage of 10,050 gt, would be reduced from 29,850 cgt to 20,100 cgt, due to this relatively small increase in gross tonnage.”

Rather than coefficients, the new system uses a formula with powers that results in a smooth ‘curve’ for all ships appearing in the specific segment, rather than the ‘stepped’ values according to the old size bracket system.

We also noted that OECD suggested that larger containerships were more complex and likely needed a stronger weighting. Bigger containerships, said the paper, often had more complex cell guide systems and post-panamax ships in general, had a wider beam to height ratio requiring more steel work. In fact, the new calculation value for containerships was 12.56% lower than the old system. Other significant reductions occurred for passenger ships (-26.52%), LPG vessels (-13.81%) and product carriers (-15.41%).

One caveat from the OECD is that the system is not designed for understanding micro dynamics at individual shipyards. Worldyards fully understands and respects the OECD’s caveat but has decided to forge ahead and apply the system in as detailed a format as possible. The shipping community is naturally intensely interested in understanding the productivity of individual shipyards, despite the limitations of the OECD system. Also of great significance, is the ability to understand the implications of switching between ship types where a yard building containerships switches focus to tankers.

The CGT system was not intended to be a measure applied to individual vessels of small groups, rather it is applicable for ‘large aggregates’. However, that only begs the question of how to arrive at large aggregates without summing up of all the small parts, i.e. the ships. By definition, anyone doing shipbuilding analysis, be they researchers or shipbuilder associations, must make decisions on applying cgt values to single vessels.

Otherwise, the world is not in possession of a meaningful comparative measure of orderbook and shipbuilding capacity. That is the approach we adopt here.

Naturally, the dock size and production line will dictate the feasibility of switching, but again, if the analyst can judge the probability of how shipyard productivity will be used, then the OECD cgt system is a reasonable yardstick (or cgt-stick).

The new system

Two main changes have been made compared to the existing method:

a. Instead of a table of cgt coefficients, depending on type and dwt size of the ships, the new calculation is based on a formula.

b. Instead of dwt as the base for the choice of the coefficients, the whole system is now based on gt.

The new formula is :

cgt = A * gtB

where A represents mainly the influence of ship type, and B is the influence of ship size, and gt is the gross tonnage of the vessel. The A and B values given by OECD as per their very broad segmentation are listed in Table 1 below.

Table 1:  A and B factors as per OECD segmentation

Ship type

A

B

Oil tanker (double hull)

48

0.57

Chemical tankers

84

0.55

Bulk carriers

29

0.61

Combined carriers

33

0.62

General cargo ships

27

0.64

Reefers

27

0.68

Full container

19

0.68

RoRo vessels

32

0.63

Car carriers

15

0.70

LPG carriers

62

0.57

LNG carriers

32

0.68

Ferries

20

0.71

Passenger ships

49

0.67

Fishing ships

24

0.71

NCCV

46

0.62

One would quickly discover that the OECD segmentations are too broad or ‘coarse’ to be operational, on a micro level, for measurement of shipbuilding capacity and analysis of the orderbook. OECD would point out that the system is made that way intentionally as there was insufficient data to allow the derivation of factors for many ships segments and sub-segments. In that way, the OECD factors cover a variety of related ship types as a sort of general average. The estimated measures are believed to be within a margin of 15% plus or minus and the system assumes that over or under estimations will be balanced in the aggregate numbers.

Through very detailed studies and extensive consultation with ‘experts’, Worldyards has developed the market-orientated segmentations as per Table 2. As a commercial concern and taking full responsibility of our interpretations, we compared our practical working segmentation to correspond with that of broad categories as given by OECD (as per Table 1) whenever possible. We have marked the Worldyards subsegments - which are not clearly defined under an OECD category – with a ‘?’ sign, and we then designate an OECD category.

The application of the new OECD system is a general guide that is, by definition, open to judgment and debate at the level of application (Worldyards would very much welcome comments at wy@worldyards.com). We also note that the OECD’s scope use of the cgt system, and Worldyards’ adaptation, applies to self-propelled seagoing vessels that meet the IMO definition of a ship. Naval (military) vessels are not covered by this system, and the definition excludes un-powered dumb vessels and offshore installations, such as FSO/FPSOs and jack-ups.

Worldyards has examined at length the prospect for applying a CGT value to offshore projects. Our primary objective was to understanding how shipyard capacity might be switched from offshore into commercial shipbuilding or vice versa. Based on our research, we concluded that the offshore industry output is akin to snowflakes; no two projects are alike enough for a standarised inclusion into aggregate measures for capacity or output calculations. In the naval arena, there has been some collaboration between private consultants and western governments. “Naval compensated gross tonnage coefficients and shipyard learning” was first published by First Marine International in 2001 and then the methodology has been applied in several projects. The naval measure application appears to be primarily for benchmarking shipyard practices and understanding cost increases rather than applying to aggregate shipbuilding capacity of commercial and naval output.
.

Table 2: A & B factors based on Worldyards segmentation, as per OECD / Worldyards own designation for sub-segments which are not covered by OECD. Please download the table here Notes on the New CGT System

Table 3 : Comparison of Orderbook (excluding the sub-segments where the new CGT system is not applicable) as of 1st January 2007, as measured by old CGT and new CGT

Segment

Old cgt

New cgt

Difference

Percentage Difference

Bulkers

17,968,923

18,561,235

592,312

3.30%

Containers

32,829,079

28,706,962

-4,122,117

-12.56%

Semi-liner Tonnage

4,526,705

4,361,750

-164,955

-3.64%

LNG (Gas I)

12,545,675

13,092,206

546,531

4.36%

LPG (Gas III)

3,692,363

3,182,295

-510,068

-13.81%

Crude (Tanker I)

19,370,935

17,201,436

-2,169,499

-11.20%

Product (Tanker II)

14,062,321

11,895,159

-2,167,162

-15.41%

Product/Chemical     (Tanker III)

2,786,092

3,208,834

422,742

15.17%

Chemical (Tanker IV)

3,636,312

4,081,887

445,575

12.25%

Specialised Tanker    (Tanker V)

78,148

83,212

5,064

6.48%

Specialised Cargo (Specialised Cargo I)

924,497

963,181

38,684

4.18%

Vehicles Carrier (Specialised Cargo II)

4,840,666

4,520,788

-319,878

-6.61%

Passenger Ships

5,858,434

4,304,877

-1,553,557

-26.52%

Offshore

155,142

142,762

-12,380

-7.98%

Service/Miscellaneous Vessels

75,935

87,317

11,382

14.99%

Total

123,351,227

114,393,901

-8,957,326

-7.26%

And the ranking of the 20 top shipbuilders (excluding offshore, since the new CGT system generally does not apply to offshore structures) is shown in Table 4:

Table 4 : Top 20 shipbuilders as measured by old and new CGT system, as of 1st January, 2007 :

Rank As per old CGT

SB Name

Old CGT

 

SB Name

New CGT

Rank as per new CGT

1

Hyundai Heavy, HHI

16,450,518

 

Hyundai Heavy, HHI

14,380,055

1

2

Samsung

8,774,834

 

Samsung

8,049,169

2

3

Daewoo, DSME

6,732,016

 

Daewoo, DSME

6,336,709

3

4

Hyundai Mipo, HMD

4,139,590

 

Hyundai Mipo, HMD

3,877,456

4

5

Universal

3,653,035

 

Universal

3,621,986

5

6

Mitsubishi Heavy, MHI

3,201,672

 

Mitsubishi Heavy, MHI

3,022,549

6

7

STX

3,140,629

 

STX

2,818,297

7

8

Imabari

2,881,917

 

Imabari

2,752,345

8

9

Dalian Shipbuilding, DSIC

2,852,881

 

Dalian Shipbuilding, DSIC

2,503,909

9

10

Hanjin Heavy

2,491,707

 

Shin Kurushima

2,357,786

10

11

Shin Kurushima

2,481,823

 

Hanjin Heavy

2,201,435

11

12

Shanghai Waigaoqiao, SWS

2,189,387

 

Shanghai Waigaoqiao, SWS

2,118,422

12

13

Oshima Shipyard

1,940,368

 

Oshima Shipyard

1,849,524

13

14

Mitsui, MES

1,830,145

 

Mitsui, MES

1,773,974

14

15

Hudong-Zhonghua

1,787,335

 

Tsuneishi

1,685,427

15

16

Tsuneishi

1,775,080

 

Hudong-Zhonghua

1,617,577

16

17

IHI

1,645,752

 

Kawasaki

1,577,117

17

18

Kawasaki

1,603,559

 

Sungdong Shipbuilding

1,542,381

18

19

CSBC Corporation

1,536,900

 

IHI

1,437,253

19

20

Sungdong Shipbuilding

1,509,150

 

CSBC Corporation

1,435,729

20

 
Conclusion

Worldyards attempt in the above is to assess the implications of the new CGT system as introduced by OECD, applicable from 1st January, 2007, by ‘aligning’ the broad OECD segments to the Worldyards detailed segmentation system, in order to get the A & B values for the Worldyards vessel categories. This exercise is of course very judgmental; our pure intention is to arrive at a measure for shipbuilding capacity under the new CGT system, as the old CGT system was applied commercially prior to 1st January, 2007. Whilst every effort has been made to make our methods rigorous, it is inevitably a combination of art and science for which we assume full responsibility.

A summary of the above has been published in the October 2007 issue of the Naval Architect, page 16-17, "Arriving at a Definition of CGT".