Since the beginning of 2018, the U.S.-based Philly Shipyard has idled all production activities in its fabrication shops and laid off approximately 42% of its employees.
The workforce cuts and facility idling are being pursued as cost-cutting measures aimed at curbing the impact of order shortage at the yard.
The company has one containership under construction for Matson set for completion in the first quarter of 2019. However, the cash-strapped shipbuilder forecasts the Matson vessels to be a loss-making project.
Until earlier this year, Philly Shipyard had been working on a project to build up to four containerships for delivery to TOTE Maritime in 2020 and 2021. However, in January 2018, this project was placed on hold.
“Since then, Philly Shipyard has explored alternatives in order to secure contracts and financing for these containerships, but without success. Based on the current new order prospects, market conditions and other circumstances, Philly Shipyard has canceled the CV3700 project,” the company said.
For the third quarter of 2018 Philly Shipyard booked a loss of USD 30 million, compared to net income of USD 17.1 million for Q3 2017.
The net loss was driven partly by an impairment charge of USD 17.3 million due to the write-off of the full amount of the work-in-process on assets pertaining to the two TOTE Maritime vessels that have been cancelled.
The net loss was also driven by an additional loss of USD 7.3 million incurred and recognized in Q3 2018 on the Matson project as well as overhead expenses incurred in Q3 2018 not allocated to projects.
For the nine-month period, the shipbuilder booked a loss of USD 36.4 million. As of 30 September 2018, Philly Shipyard had an order backlog of USD 39.0 million.
“Securing contracts for new vessels is the key to Philly Shipyard’s long-term future and ultimate return to sustained profitability; however, this is not expected to materially improve its near-term forecast. Due to the under-recovery of the costs mentioned above, Philly Shipyard expects it will suffer significant losses in 2018 and 2019, even if the shipyard receives orders for new vessels. The current forecast is also subject to sensitivity due to the potential for operational inefficiencies arising from the timing of new vessel orders and other unforeseen impacts,” the company added.
Philly Shipyard said it was in active discussions on several potential construction projects for U.S. built vessels. These include negotiations with an undisclosed potential buyer for the construction and sale of two 50,000 DWT class product tankers for operation in the Jones Act trade with targeted deliveries in Q4 2020 and Q1 2021.
The duo signed a term sheet for the transaction in July 2018. If built, these vessels will be substantially similar to the recently completed series of eight MT-50 class product tankers delivered by Philly Shipyard, except the main engines will be upgraded from Tier II to Tier III compliant.
The shipbuilder is also pursuing an opportunity to build five academy training ships under National Security Multi-Mission Vessel (NSMV) program. The shipyard contract is expected to be awarded within Q1 2019. MARAD has received USD 300 million in federal funding for the first vessel, which is desired for delivery by the end of Q4 2021.