CHANGING CHARACTERISTICS OF THE SHIPBUILDING MARKET
24-25 November 2011: Submitted to Council for consideration
SUMMARY
The global recession – a major disruption to the shipbuilding industry
• The 2008 global economic downturn severely affected the world shipbuilding industry, and interrupted a very active and buoyant period for shipyards.
• The very full orderbooks held by shipyards when the downturn commenced meant that record tonnages of new vessels continued to be produced, at a time when demand for shipping services contracted significantly.
• The world economy appeared to be headed towards recovery in 2010, which prompted a new spurt of orders, but in mid-2011 this reversed, and a double-dip recession is now anticipated.
What this will mean for shipping services, and consequently on shipbuilding is still unclear.
A change in the world shipbuilding order
• Well ahead of expectations, China overtook both Korea and Japan to become the world’s largest shipbuilder, with an orderbook of sufficient size to suggest that this status will not be lost in the near future.
• Japan was not only relegated to third place in the world, but lost a very significant share of world production, slipping from over 30% in 2000 to around 18% in 2010. The impact of this decline was mitigated to some extent by the loyalty of its domestic shipowners, who accounted for almost 70% of vessels produced in Japan in 2010.
Declining Europe - Growing Asia
• In 2000, Europe’s five largest shipbuilders accounted for 14% of world production, but by 2010 this had slipped to 5.3%. In contrast, the top five Asian producers (outside of China, Japan and Korea) accounted for 2.8% in 2000, but 4.2% in 2010, further emphasising the growing focus of shipbuilding in Asia.
• Recent production data, and their orderbooks, suggest that these second tier Asian producers will continue to grow in the future.
The bulk carrier fleet may become saturated
• Bulk carriers dominated production in the latter part of the 2000s, and a large number of bulk carriers was delivered in 2009 and 2010, and they continue to dominate the 2011 order book.
These new bulk carriers will be delivered over the next 2-3 years, and will further increase oversupply.
• The Baltic Dry Index (BDI) is a trigger for ordering decisions from buyers of bulk carriers, and this effect was clearly evident in 2003, 2006-7 and 2009. Whether these decisions will be justified in the face of continuing concerns about the world economy remains to be seen.
A significant proportion of the world fleet is still to be delivered
• Overall, the current order book represents around 30% of the current world fleet, and as noted earlier bulk carriers could be the most significantly affected, as potentially, vessels equating to 45% of the current fleet, will be delivered over the next few years.
• In the tanker segments Very Large Crude Carriers (VLCCs) are of concern, with significant numbers on the orderbooks, a very young fleet (so that scrapping is generally not a viable option) and collapsing second-hand prices.
Different producers, different specialisations
• Japan continues to rely on bulk carriers and tankers, which given the likely oversupply of these types of vessels could be a cause for concern
• Both Korea and China are more export oriented, and produce a broader range of commercial ships, and these diversifications could give them additional flexibility if market conditions deteriorate further in the future.
• European shipbuilders have essentially moved away from mainstream, commercial ships (especially bulk carriers and tankers), to focus on higher-end, high-tech vessels, such as passenger ships (particularly cruise vessels). These are specialised markets that so far have not been significantly entered by other large producers, and may be affected differently by future economic developments.
The “emerging” shipbuilding economies have arrived
• Shipbuilding in both the Philippines and Vietnam recorded exceptional growth in recent years, and are now challenging the production levels of the major European producers. Both also have strong orderbooks to help them to consolidate those positions.
• Both economies have benefited from significant Foreign Direct Investment (FDI) and technology transfers to their yards, and could be expected to pose strong competition to other mid-sized producers in the future.
But some need to strengthen their production performance
• Both Brazil and India have strong orderbooks, but their production performance as been uneven, and at current production rates would take around ten years to complete those orderbook, a situation which is probably untenable in the longer term. A strengthened production performance would see both economies cement their potential as future significant players in world shipbuilding.
