IRISL Places $650m Order for 10 South Korean Vessels

Islamic Republic of Iran Shipping Lines has signed its first post-sanctions shipbuilding deal with the world's largest ship manufacturer Hyundai Heavy Industries on December 9.

Based on a report by IRNA, “HHI will build 14,500 TEU container ships and 49,000 DWT tankers with the funds provided by South Korean banks and financial institutions.”

Earlier this month, Yonhap news agency reported that the South Korean shipyard was going to sign a contract worth $650 million with IRISL to build four container ships and six DWT tankers.

The report added that the ships will be delivered, starting in the third quarter of 2018.

According to Wall Street Journal, the deal is part of plans by Islamic Republic of Iran Shipping Lines and Iranian Offshore Oil Company, a subsidiary of state oil company National Iranian Oil Company, to spend a total of up to $2.5 billion to modernize their fleets.

Iranian shipping companies have not modernized their fleets since 2006, when the United Nations imposed wide-ranging sanctions against Tehran over its nuclear program. The sanctions began to be gradually lifted in January after Tehran agreed to limit the scope of the program. But the Iranian companies are still struggling with their limited capability to raise financing in US dollars, the main currency in shipping, and have tried to secure financing from Chinese banks by offering Beijing oil in return for loan guarantees.

The IRISL operates about 115 oceangoing vessels, but many of the ships are old, have been deemed unsafe to travel and cannot be insured.

Iranian Offshore Oil Company has been in talks with South Korean and Chinese yards for at least five offshore drilling vessels known as jack-up rigs at around $200 million each, people familiar with the matter said in a Wall Street Journal article published in June.

As Iran moves to build modern fleets, its companies have been chartering vessels from Greek and other owners to build market share in container and tanker cargoes.

The Iranian shipping line hopes the container order will give it the capacity to eventually join one of three major shipping alliances that move the vast majority of global containerized cargo, company officials have said.

IRISL’s Managing Director Mohammad Saeidi has been touring countries with major shipping clusters like Greece, France, Denmark, Germany and Cyprus since late 2015 to secure chartering and vessel-sharing agreements, people involved in the talks have said.

Annual seaborne trade between Iran and the European Union amounted to $15 billion before the first broad, international sanctions were imposed on the country in 2008. Tehran expects to return to that level by 2020.

The Iranian orders will be a welcome respite for shipbuilders suffering from a virtual halt of new orders, as shipping is trying to cope with a glut of tonnage in the water estimated at 30% above demand.

South Korean shipbuilders have been selling non-core assets and slashing thousands of jobs to cope with the shrinking orders. South Korea is home to the world’s three largest shipbuilders—Hyundai Heavy, Daewoo Shipbuilding & Marine Engineering Co. and Samsung Heavy Industries Company.