Interview with CEO Derk te Bokkel: "A real need for Dutch-Flemish dredging cluster to close ranks"
Transparent pricing, minimised costs, and far more options in the development process. The client can decide in which phases they will or they won’t, work with Royal IHC? Who will construct the key components? Will construction take place in the Netherlands or in Asia? CEO Derk te Bokkel: “The dredging sector needs competitive construction facilities with manageable risks. Royal IHC is ideally positioned to manage those risks - that's our raison d’être and we will do that against a competitive price.”
The main contractors in the Dutch-Flemish dredging cluster are Derk te Bokkel’s top priority. With this in mind, he has implemented a diverse set of measures to better serve clients during his first year as CEO of Royal IHC. In addition to excellent and fast service, everything revolves around a good value proposition, a transparent list of options, and competitive pricing. Therefore, clear choices are being made regarding construction strategy, make-or-buy and in which segments Royal IHC wants to operate – or not.
An important new principle is providing insight into the cost structure.
Te Bokkel says: “Royal IHC’s calculation and cost allocation system has been revised, which has resulted in a much better understanding of actual costs. and in which areas we are - and are not - competitive.” The organisation is now in line with the current production volume. "Wherever parts of the current organisation are not yet streamlined, costs are not passed on, so the calculation parameters are realistic.”
As part of the new working method, Royal IHC offers a basic design process, in which the shipbuilder makes a preliminary calculation of the main components, with an agreed coverage in terms of hours and materials.
“In this way, the client can pull out at any moment if the target price cannot be achieved. If this is the case, the basic design can be used for construction at another yard, if execution is not outsourced to Royal IHC. As part of the design team, the client can also think along about make-or-buy of the main components. This gives our clients the possibility to test the entire construction model per component for market conformity. This ultimately results in a make-or-buy price which provides the basis for an investment decision.”
In other words: a ‘cafeteria’ model: “If the client wants to manage a yard themselves, it’s also possible that we only supply parts - engineering or equipment or both. However, Royal IHC isn’t in the market for providing engineering and consultancy separately, which immediately excludes building vessels or mission equipment. “That’s not our business model. Our organisation is set up to build vessels and equipment. In the end, that’s our ultimate role in the process.”
The dredging industry needs a competitive construction site with manageable risks. Royal IHC is ideally positioned to manage those risks.
Derk te Bokkel - CEO Royal IHC
Two-pillar strategy
Of course, Royal IHC must be able to build competitively. Te Bokkel: “Sometimes we can achieve this, but with a Western European cost base, it’s not always an option. Hence our partnership with Vietnamese shipyard Nam Trieu. This makes us flexible. We don't have to keep the yard occupied at all times, and construction in Vietnam is considerably less expensive due to the lower cost factor on manufacturing components.”
This is precisely why Te Bokkel has been pushing hard for a solid cost price reduction: “There is one condition: we need to achieve an asset price that allows dredgers to offer their projects competitively.”
The basic scenario is a two-pillar strategy, in which Royal IHC builds both at the Nam Trieu partner yard and at the yard in Kinderdijk. “In Kinderdijk, we build technically complex vessels or vessels that require a shorter lead time than we can realise abroad. Here, we also build for clients who specifically want production to take place in the Netherlands, such as the Ministry of Defence. In the meantime, it has become clear that the Dutch shipbuilding organisation still has a role to play. That's where we train our people who work in international construction projects or in services.”
Royal IHC's cost approach is now extremely rational.
“We want to maintain our shipbuilding function in the Netherlands, but we don’t assume that we will be building vessels continuously. The question we must keep asking is: What jobs makes sense for our Kinderdijk location? Where can operations be competitive and what can better be delivered by the supply chain? For example, we recently decided to start building pontoons in Serbia again, and we currently build some dredging equipment at our facility in India, or with suppliers in countries such as Romania and Turkey.”
Te Bokkel continues: “That's why we want to have a Dutch executing organisation which doesn't cause too many issues at the bottom of the cycle. So, we’ve been very cautious, in recent years when it comes to refilling vacancies. We only hire new staff if they are mission-critical, and their hours are directly billable.”
Improved vessel with reduced project risk
As a specialist in building dredging equipment, Royal IHC has a special role to play in the sector. “When contractors start building their own assets, they take on the financial risks associated with execution. Royal IHC is excellently positioned to manage these risks for customers. We’re more experienced in the integration of dredging equipment and managing building processes than any individual dredging firm. That’s our raison d’être.”
According to the CEO, certain specialisations are better taken care of by a party that combines functions for the sector, such as control technology, dredging pumps, and sometimes also technology development. “We can contribute significantly to combining the engineering process with the implementation process. A feedback loop between the two exists. This approach results in better vessels with reduced project risk.”
The reverse is also true.
“If a party other than the builder takes care of basic engineering, there will be gaps in the design due to lack of integration with the production process requirements. These need to be solved during the development of a detailed design, but the builder - that means us - has to take on the cost of closing those gaps and has the knowledge required to do so. That is usually loss-making for us, so we are very cautious about offering vessels for which we do not do the basic engineering ourselves or which we cannot validate properly. We have found that in such cases, the calculation parameters are often no longer correct.”
Te Bokkel: “This issue is not unique to Royal IHC, but something every shipyard faces. This is one of the reasons why complex dredgers are seldom built on budget and problems regularly arise when a client builds a dredger with an inexperienced shipyard.
“I think that dredging firms will run into issues finding an executing yard that is willing and able to take on the risk, while also being capable of performing in accordance with the contract,” he continues. “In the West, there’s been a huge drop in shipbuilding assignments, while at this time global shipyards’ order books are filling up. That means Royal IHC can resume its original function, which is risk mitigation in the construction of those ships. The Nam Trieu shipyard can fulfil the role of an experienced builder of complex dredgers with a competitive cost base, if the construction of dredgers is concentrated there, under the direction of an experienced shipyard and equipment supplier.”
We are more than happy to build vessels, but only based on a risk-sharing model.
Derk te Bokkel - CEO Royal IHC
Connected destinies
“Ideally, you would develop concepts and basic engineering in a co-production, with a dredging company contributing its operational knowledge and Royal IHC transferring that knowledge to the shipbuilding process.”
To arrive at effective co-production in the dredging sector, great strides need to be made in terms of mutual trust.
“What really surprises me in this sector is the fact that there seems to be a trend where maritime engineering firms want to utilise its own construction process across a variety of less experienced sites, rather than buying from a specialist company. In the automotive sector, in which I worked for many years, we see the exact opposite. There, the entire sector works with a very limited number of extremely specialised suppliers. The supplier knows the quality standards and does not even think about sharing customer IP, because that big customer will then immediately start looking for an alternative and the supplier will lose out. That complete system has remained stable for decades.”
“In the dredging sector, setting up rational business models appears to be very difficult. You can't encapsulate everything in contracts. This sector is riddled with conflict. Risks are passed on to shipyards based on the notion that “If you don’t like it, there are plenty of other suppliers.”
Te Bokkel makes his case clearly: "We are more than happy to build vessels, but only based on a risk-sharing model. It is not our role to take on the customer's complete business risk. If everyone keeps playing that game, we will end up destroying our own European supply infrastructure. That can hardly be the industry's intention."
Finally: “There is a connected destiny in the sector. There is a real need for the Dutch-Flemish dredging cluster to close ranks. What we require is a common goal: to work together in the longer term, help each other solve the problems and share the costs and risks in a reasonable way. In this way, we can compete with Asia and keep our cluster afloat.”
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