A VIEW OF WORLDWIDE SHIPBUILDING REVEALS SIGNS OF REVIVAL IN SOME SECTORS

No matter which set of shipbuilding tables or statistics one studies, there is no escaping the fact that Japan continues to be the world's leading shipbuilding nation, supplying over 50 percent of the world's tonnage. This has been achieved, moreover, in spite of an average cutback in capacity of about 35 percent, and in labor by 50 percent, compared with its peak-time figure.

In looking at Japan, one cannot help but notice her near neighbor, South Korea, which, in direct contrast with other shipbuilding nations, is actually increasing her shipbuilding capacity with the opening of the Daewoo shipyard.

Both countries will be discussed in more detail later.

Elsewhere in the world there has been a general cutting back of s h i p b u i l d i n g capacity, the pruning in some countries being quite severe, particularly in Europe, with Sweden — only a few years ago the world's No. 2—being hit particularly hard. However, offshore work, which doesn't usually appear in shipbuilding returns, has helped to soften the blow for some yards, and naval orders have helped others. Even though there is much talk, and some evidence, that the recession is nearing its close, it has not halted the shipyard cutbacks.

It is understood that in Spain which, according to Lloyd's Register Shipbuilding Returns for the quarter ended December 31, 1980, is in third place in terms of total order book, talks are being held with a view to reducing facilities by 35 percent and manpower by 20 percent. It seems more likely, however, that the reductions will be 20 percent and 10 percent, respectively, because of the hardship such drastic cutbacks would mean to areas — Cadiz, for example—where there is so little other industry. Although that country's total order book has increased of late, more than 50 percent of this is now under construction. France, Germany, Italy, Norway, and the United Kingdom are all in similar situations though, in effect, the latter two countries have suffered a reduction in their total order books.

The country that has incurred the biggest fall in total order book is Brazil which, nevertheless, remains in fourth position closely followed by the United States. Like the U.S., the Brazilian order book is based on home orders, but Brazil does have a Shipbuilding Plan.

JAPAN As stated earlier, Japan in spite of severe cutbacks both in terms of facilities and labor force, including the closure of 10 yards, is still supplying half the world's tonnage. The cutbacks average about 35 percent because the seven majors cut back by 40 percent, while yards not capable of building ships over 10,000 grt cut back by 15 percent. Yards between these two criteria cut back by an average of about 28 percent.

Another interesting point is that the average production of Japanese shipbuilders was limited by an i n d u s t r i a l c a r t e l, formed on August 1, 1979, to 39 percent of each yard's peak production figure, in terms of compensated gross registered tonnage.

The idea behind this cartel was to help overcome the serious slump affecting Japanese yards, and it was to be effective until the end of March this year. However, as far back as April 1980 this cartel was extended by a year, and the production ceiling for fiscal 1981 increased by 30 percent over the previous year, i.e., 51 percent of the peak production.

In addition to the cartel which, by reducing available capacity, proved to be the most effective in cutting down the suicidal competition between yards that resulted in below-cost ships' prices.

Japanese shipbuilders were also cushioned against the real effect of the depression by a relatively large number of domestic contracts in 1979. The 35th government- sponsored shipbuilding program for fiscal 1979 comprised 32 ships totaling over 1.6 million grt, and was about the same as the aggregate of the previous four programs. About 100 other vessels amounting to 1.2 million grt were ordered by Japanese owners.

Japan has, in recent months, come under scathing attack from European shipbuilding nations — she did in the mid-1970s — who are alarmed at her success rate.

But Japan has truthfully replied that it has taken major steps to reduce its capacity . . . unlike a number of other nations. The reason behind the European complaints is obviously the number of orders that have been going to Japan from that part of the world. Japan has also been successful in obtaining orders from U.S.-based owners. This was illustrated r e c e n t l y by Hitachi Zosen who received contracts for two Panamax bulk carriers from subsidiaries of the Xylas Group, also two further Panamax bulk carriers and one 132,000-dwt bulk carrier from subsidiaries of the National Shipping and Trading Corporation Group. While Panamax bulkers appear to be a good buy for foreign owners, this does not seem to be the case for domestic operators who, allegedly, are re-assessing their plans for these vessels because of rising prices. Could it be that for them the cartel has been too effective?

SOUTH KOREA Some six years or so ago, the president of the Japan Ship Export Association said that because of the low wage rates in Korea, Japan could not compete with that country's prices when it came to "no-frills" ships. He felt t h a t Japan's strength and future lay in building high-technology, sophisticated vessels leaving the ordinary type of ships for the Koreans to build. The expected rapid expansion of the Korean shipbuilding industry did not occur for various reasons, although its yards were successful in obtaining some very good orders, notably Hyundai's 28 ships built for Kuwait.

However, it now appears that Korea is once more causing a headache to the rest of the shipbuilding nations. Although its tonnage on order is a great deal less than that of Japan's it is, a f t e r all, in second place in the order book league — a position it has held for the third consecutive year. Furthermore, in the first three months of this year it has been very successful in obtaining new orders, the value of which is reported to be a staggering 35 times more than those received during the corresponding period last year. But even more worrying for its near neighbors is that a large number of these orders are for sophisticated tonnage.

An example of this is the contract for four chemical tankers (with an option on two more) won by the new Daewoo shipyard.

This yard's order book also i n c l u d e s f i v e semisubmersible platforms — three for U.S. flag and two for U.K. — as well as a 140,000-dwt bulk coal carrier, two 150,000-dwt OBO carriers, and a 125,000-dwt tanker.

It is interesting to note that British consultants A & P Appledore and Det norske Veritas will jointly provide operational and completion assistance to the Daewoo yard, which was built to a design developed by A & P Appledore.

It may be recalled that these consultants were responsible for Korea's leading shipyard, Hyundai Heavy Industries, which commenced operations in 1974.

Hyundai has already delivered some 120 ships and its current order book, stretching through to 1983, must be the envy of many other yards throughout the world.

Bulk carriers predominate with many of them for service under the British flag and others for Norway, although, as might be expected, the Liberian flag has the leading share.

Korea's third largest yard is Korea Shipbuilding and Engineering Company, whose order book is composed mostlv of tankers in the 20,000-60,000-dwt range, including a number of chemical and product tankers. Next in size is Samsung Shipbuilding. In addition there are a number of smaller yards. Korea has been singularly successful in obtaining a high percentage of export orders, but the Government is also keen to see its own national flag fleet expanded in order to secure a greater share of its trade. As a consequence, most of the yards' order books are punctuated with domestic orders. Expectations are that Korea's national shipbuilding capacity will, by 1986, have grown to reach 6.5 million grt, which is nearly 50 times that existing in 1971.

CHINA A look at the order books of the Chinese yards reveal t h a t this country, too, is achieving some measure of success in Europe with contracts from owners in Germany and Norway. Other export ships will fly the flags of Liberia and Panama. As for its domestic fleet, a number of vessels are on order but it should be recalled that in the past three years or so China has built up her merchant fleet by the acquisition of good quality secondhand tonnage.

China is now seeking to import shipbuilding technology and is currently upgrading the building facilities at a number of yards.

At the Jiangnan Shipyard, Shanghai, for example, two 7,000-toncapacity slips are being rebuilt to form one of 60,000 tons capacity.

In addition, the yard has five other building slipways, one for ships of up to 27,000 dwt, three for vessels of up to 7,000 dwt, and the sixth for those of the 1,000-dwt category.

Also in Shanghai is the floating shipyard for which future development expansion is being considered. This story can be repeated for many other yards throughout the country, and it is certain that in the future many of these will be seeking export orders. When one takes the vast potential of this nation into account, clearly the prospects of China becoming a net exporter of ships cannot be ignored.

TAIWAN Another country to increase its order book in recent months is Taiwan, whose China Shipbuilding Corporation (CSBC) has yards at Keelung and Kaohsiung. Again, domestic owners account for a fair proportion of the work in hand. There is also a national shipbuilding program accounting for 28 full containerships, 10 Panamax-type bulk carriers, and two tankers, all of which are to be built in three years from July 1980 to June 1983.

Built in 1975, the Kaohsiung yard has a building dock capable of constructing ships of up to 1,000,000 dwt. The Keelung yard's facilities include a 100,000- dwt capacity building dock and a 30,000-ton building berth, as well as repair docks. It is understood that CSBC is looking to the construction of highly specialized and sophisticated ships, such as LNGs, LPGs, etc., in the future.

So f a r as the rest of Southeast Asian shipbuilding countries are concerned, Singapore is perhaps best known for its highly successful ship repairing activities.

However, there are a number of yards such as Promet and Far East-Levingston that have good order books for small, specialized craft in the form of supply ships, tugs, etc., as well as offshore rigs.

Across the causeway, efforts are being made to increase Malaysia's shipbuilding capability, though it looks as if this count ry will remain an importer of tonnage for some time to come as newbuildings are likely to be restricted to coastal vessels. On the other hand, the Labuan yard of Sabah Shipbuilding and Repairing is currently expanding its facilities.

In the jump from Southeast Asia to Europe, we pass over countries such as India whose yards are building for domestic owners.

SPAIN Although Spain clearly leads Europe with the amount of tonnage on order, a very high proportion of this is for account of domestic owners. Spanish shipowners are not encouraged to build abroad and the selected subsidy program, together with a home credit scheme, are an added incentive. The country has recently attracted an increased number of export orders, but as stated earlier in this article a reduction in capacity is currently under review. According to Lloyd's Register, tonnage completed in Spanish yards last year was only a quarter of the figure returned in 1975. It could be that this decline in productivity explains why Spanish yards have so far been able to avoid the severe cutbacks experienced by other countries.

FRANCE One of the leading European nations with regard to investment in shipbuilding facilities — the yards at Saint Nazaire and La Ciotat are outstanding examples —France has had to cut back its activities to more than half its peak level. But in this case these figures can be misleading because French yards have for some time been building highly specialized ships, particularly gas carriers, in which there is a high work content; much of the current order book is made up of such sophisticated tonnage. A considerable increase in newbuildings ordered by French owners last year helped French yards inasmuch as they received the bulk of the ships — four containerships, four RO/ROs, two LPG carriers, and a passenger ship — and the bulk of the value, but four ships, totaling over 440,000 dwt, went elsewhere.

WEST GERMANY Most of the major German yards are having a lean time, although some have received naval contracts and others are engaged in offshore activities. An indication of the overall situation can be judged from Howaldtswerke Deutsche Werft whose recently released annual report cited the newbuilding sector as the primary cause of undisclosed losses. However, its chairman, Dr. Norbert Henke, said that it is possible to look ahead with cautious optimism as long as the gradual improvement in the shipbuilding industry continues without any m a j o r s e t b a c k s . He strongly urged that the West German Government continues its aid to the industry and added "it would be a gross mistake to stop this aid." Despite HDW's diversification into other non-marine fields, it has reduced its number of employees by 3,400 since 1975 and f u r t h e r reductions are planned.

Dr. Henke contends that the future of West Germany's shipbuilding industry lies primarily in the construction of specialized vessels and progressive exploitation of advanced technology.

UNITED KINGDOM The United Kingdom's shipbuilding industry is still being cut back, and in recent weeks there has been a considerable difference of opinion between the unions and the nationalized corporation, B r i t i s h Shipbuilders.

The problem is that a further 2,600 redundancies were required and while 2,000 workers volunteered for this, lay-off notices were served on the remainder.

The corporation has to date enjoyed much support and cooperation from the unions, but both sides appear to have a tough line over this latest move.

Last year, the corporation introduced a family of designs and more recently has decided to develop and market a range of liquefied gas carrier designs. In the meantime, its warship builders are doing well, and there has been much s p e c u l a t i o n about some of them being sold back to private enterprise. This seems unlikely — BS has itself denied such a move — as the corporation would lose money at an even higher rate than currently. Also looking on the bright side, Austin & Pickersgill, one of the few yards doing well prior to nationalization, is still maintaining a good order book for its SD 15 cargo ships and bulk carriers.

Clearly though, the Thatcher government will have to find some way of f u r t h e r supporting the industry — after taking office it gave BS support for two years while restructuring took place and its capacity was reduced by one-third — otherwise there will be more unemployment in areas that already have been hard hit.

SCANDINAVIA In Norway, as in the United Kingdom, a shipyard employment has been drastically reduced and for many shipbuilders it has been a question of survival. Many have no doubt been saved by offshorerelated work. Norway's problem stems from the high cost of production compared with some other countries, and thus under normal circumstances the yards are u n a b l e to compete. However, there are several aid schemes that allow shipbuilders to compete more effectively for orders with subsidized yards in other countries.

Sweden's shipbuilders, which come under Swedyards, the stateowned i n d u s t r i a l and marine group, have suffered considerably as a result of the recession, particularly with regard to large tanker construction that accounted for much of the tonnage built during the early to mid-1970s.

Nevertheless, yards have diversified both with regard to the types of ships built and also into other areas.

Denmark, similarly, has had to make cutbacks in its labor force.

The current order book shows a large proportion of ships under construction for domestic owners.

Most fortunate of the North European countries is Finland.

The various yard order books reveal a very high percentage of ships to be building for the Soviet Union, a result of bilateral agreements between these two countries.

Before leaving Europe, mention must be made of the Polish industry, which is currently attracting considerable attention though not on account of its order books.

What effect the political situation will have on its shipyards remains to be seen. Other European countries— Italy, Belgium, the Netherlands— have all been adversely affected by the recession in varying degrees, and it seems as if the contraction of European shipbuilding is not finished yet.

Despite the foregoing, however, London shipbrokers Eggar Forrester report that orders for new tonnage continue at a pace which may eventually lead the industry into one of its regular cycles of over-supply. That the majority of bulk tonnage orders has been going to the East was a subject of some recrimination at a recent OECD meeting. But European yards hold larger orders for the more sophisticated types of ships, and Spain has recently won a number of contracts especially for bulk carriers in the region of 30,000 dwt.

With many yards holding full order books for 1983, few early berths are available: the U.K. is one exception here, and a weaker pound and good credit arrangements may also be attractive.

In summing up the world shipbuilding situation, the concentration of yards in Southeast Asia is unmistakable. Despite modern technology, shipbuilding is, always has been, and always will be, a labor-intensive industry and, logically, if labor costs are cheap then ships will be inexpensive.

Advances in the industry apply to all countries, with lowlabor- cost areas able to take the same advantages as their longerestablished c o u n t e r p a r t s elsewhere ; the Southeast Asia yards are among the most modern in the world.

It should also be realized that shipping is a competitive business and shipowners do not owe shipbuilders a living. Free of restrictions as to where he should build, the shipowner would naturally opt for the yard, in whatever country, that could offer him the lowest price coupled, of course, with the quality and delivery dates he requires. It follows, therefore, that to maintain a strategic level of indigenous shipbuilding capacity, many governments will have to provide more incentives to their native shipowners to build in their native yards.

Perhaps the other alternative, discussed in London at the International Marine Industries Forum in March, is to undertake a policy of "scrap and build" and, in so doing, remove less efficient ships while giving a steady base load to shipyards.