Yards in the world’s three major shipbuilding countries – China, Japan, and South Korea – are reshaping their capacities as a leaner sector emerges from the rubble of the circa-2008 banking crisis.
As these three nations strive to rebuild their orderbooks, several key questions for shipping have emerged in 2018. How will each country’s policies affect their competitiveness? How will shipping and offshore fundamentals affect ordering pace? And how will new technology shape the shipbuilding process of the future?
Shipyards have been in transition since the financial crisis, which plunged demand for newbuildings to unprecedented lows. A decade on, the yards are taking major steps to develop a modern vessel-construction model fit for the future.
Newbuilding statistics from IHS Markit show that China has the busiest orderbook, with 41% of newbuilding tonnage, and remains the largest shipbuilding nation in the world. The other two major protagonists – South Korea and Japan – are locked in a battle for second place with market shares of 26.4% and 26.1% respectively.
Around the turn of the century, South Korea overtook Japan as the world’s leading shipbuilding nation, but its dominance was short-lived and the mantle passed to China a few years later. Japan has now drawn up plans to reinvigorate its shipbuilding industry and has targeted a 30% market share of completed ships by 2025.
Japanese yard consolidation and closures started in July 2010, with the closure of Mitsubishi Heavy Industries’ Kobe division. In 2013, the merger of the shipbuilding divisions of IHI Marine and Universal Shipbuilding created Japan Marine United (JMU), a company with five yards.
JMU’s technical research centre is one of the organisations looking to develop advanced robotics to help increase productivity, along with Imabari, which is developing a welding system that uses artificial intelligence and will have up to six robots welding simultaneously, according to Hideaki Saito, who was recently promoted to director of the shipbuilding and ship machinery division at the maritime bureau of the Ministry of Land, Infrastructure, Transport, and Tourism (MLIT).
New technologies are a major element of Japan’s strategy to recover market share in what Tokyo believes is a strategic industry. In 2016, MLIT and industry experts developed a strategic plan for achieving their market-share goal, targeting the ‘Four Driving Forces’ Japanese shipbuilding needs to strengthen.
First, yards must develop sophisticated products and services, using big data, automation, and the internet of things (IoT), as well as sophisticated ship-design methods to develop new vessel types. Second, MLIT believes that by cultivating new business, it can develop new skills among labour and create new markets, including in the offshore business and transport of liquefied hydrogen.
Third, according to Saito, shipyards and designers must acquire “the ultimate efficient manufacturing process”, which will allow each element of the vessel-construction process to be visualised and shared with partners. Finally, MLIT recognises that developing the human resources to take advantage of new technologies will be the key to the developments.
In an interview with IHS Markit, Saito estimated that “10,000 more staff would be needed – painters, welders, ship designers, and others”, amounting to about 5% of the total workforce in the industry at this time.
“We want to build, or realise, an autonomous ship by 2025,” Saito said, adding that if Japanese shipbuilders could develop navigational systems that were integrated into the operation of the ship, this “should be a large area where no shipbuilders have entered so far”.
Japan understands that the intensity of competition between yards will only increase and it has accused South Korean yards of receiving state subsidies through government-owned banks such as Korea Development Bank. Seoul counters that the bank loans are commercial decisions taken without government interference.
It is easy to understand the motivation on both sides of the subsidy debate, given that China now accounts for 51% of container ship tonnage on order, compared with 25% and 24% for South Korea and Japan respectively. China also has 59% of bulk carrier tonnage on order, versus 31% for Japan and only 10% for South Korea.
In the tanker and gas carrier markets, South Korea takes the crown, with 41% of tanker orders to China’s 34% and Japan’s 25%, and 56% of gas carrier orders to Japan’s 28% and China’s 16%.
However, South Korean yards have struggled to maintain their business following the collapse of orders and the effects of falling oil prices on the offshore sector – not just the smaller yards, but also the once-mighty Daewoo Shipbuilding and Marine Engineering (DSME) and Samsung Heavy Industries. Until 2017, South Korean yards reportedly had a utilisation rate of just 50%.
As a result, shipbuilding corporations have struggled to survive. Mid-tier Sungdong has no orders and is looking to restructure debts, DSME has needed loans from banks to continue, and other yards have closed.
South Korea’s difficulties in maintaining market share are exacerbated by the structure of its maritime cluster. Domestic lines are not as stable or as large as Japan’s. With last year’s demise of Hanjin Shipping, the ability and opportunities for the South Korean industry and government to develop a Japanese-style strategy to support yard orders is limited. As a result, its maritime cluster relies heavily on the export of vessels to foreign buyers.
In contrast, Japanese government, industry, and research institutes have set a national strategy for the benefit of the country’s shipbuilding industry. Supporting the research and strategy are Japan’s domestic shipping lines, which order vessels at domestic yards in preference to foreign yards.
China’s strategy is devised by the central government and handed down to the industry. China, like Japan, views shipbuilding as a strategic industry. But unlike Japan, China’s shipbuilding is not yet mature and is still evolving.
Hu Jin Tao, the president of Shanghai Merchant Ship Design and Research Institute (SDARI), pointed to the September 2014 release of an ‘opinion’ that promoted shipbuilding as a strategic industry.
“The issuance of ‘opinions’ has far-reaching significance to China’s shipping and shipbuilding industries,” he said. “Domestic cargoes are transported by domestic ships, while national ships are built by domestic shipyards” are the key points. “This will actively promote the research, development, and building of high-tech vessels.”
He also pointed out that the ‘Made in China 2025’ plan released by the State Council in 2015 called for “the development and engineering of deep-sea stations and large floating structures”, development of “luxury cruise designs and building technology”, enhancement of “international competitiveness of high-tech vessels, such as liquefied natural gas carriers”, and mastering “core technologies of integrated, intelligent, and modular design and manufacturing of key ancillary equipment”. He noted that China State Shipbuilding Corporation was “vigorously promoting the design and building of cruise ships and intelligent ships”.
Another central component of China’s strategy has been to remove excess yard capacity, with more than 140 yards either closed or merged. According to sources in China, no more than 50 yards remain active and the industry still needs to cut a further 30% of capacity.
Many Chinese yards are still likely to face severe underemployment as new orders remain below the completion rate for 16 consecutive months and construction work is expected to end this year. According to Tao, that means “in 2019, some yards will face huge problems of underemployment”.
The pivotal question – for the yards in China and elsewhere – is whether recent global economic growth will finally bring more orders, which will allow them to survive, for now.
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