Team Finland Future Watch: East Asia Networks - Case maritime cluster


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Team Finland Future Watch: East Asia Networks - Case maritime cluster

  1. 1. FinNode China 2012 East Asia Value Networks - Case Maritime Cluster 6/2013
  2. 2. FinNode China 2012 East Asia Value Networks - Case Maritime Cluster 6/2013 2
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  4. 4. Executive Summary This study examines the current and future value chains of the maritime cluster (shipbuilding) in East Asia and the position of Finnish component, system and service suppliers within it. When addressing East Asia, we focus mostly on P.R. China and South Korea, with some consideration on Japan, too. When addressing shipbuilding, we opted not to consider cruise liners, a small market niche. The topic is sufficiently covered presently in the Finnish discussion and business development work (e.g. Talouselämä 40/2012, Valonpilkahdus tulee mereltä, Source 2). We also have not included oil and gas offshore–related business, although due to the global crisis of shipbuilding this is an increasingly interesting area to both shipyards and component suppliers. Reason and need for considering East Asia and emerging markets in general as focus business areas lie in the future world GDP forecasts. In 1995, Europe represented 25% of the global GDP; today, this figure stands at around 18%, and by 2030, it will fall to around 10%. Furthermore, we must point out that when talking about the building of new ships, South Korea, China, and Japan maintain market share of over 90% globally. Hence, succeeding in Asia is one of the key factors to the existence of the maritime cluster in Finland. • The shipbuilding crisis and its effects in East Asia: Korean companies have converted more aggressively towards the offshore –industry than Chinese shipbuilders, who seem to seek more opportunities in Cleantech –related business or in metal-working business in general. The relatively low technological capacity of Chinese shipbuilders is also affecting their ability to compete even on bulk carriers and merchant ships, since energy –efficiency and similar technology content requirements from high end users are increasing all the time. The difficulties faced by Chinese shipbuilders are serious: out of 1.600 shipyards, only 200 currently have any orders. Several of them will focus on ship repair, instead of building new ships. Many of them will also close in 2013-2015. At the same time, the component market seems to have moved towards low-mid and low-low segments; this might in result loss of market share of Finnish companies, unless something is done urgently. Recommendation to Finnish companies: much more work is needed immediately on end customer demand assessment and product adaption towards mid and mid-low segments, unless we are prepared to accept the loss of our current market share to Chinese and Korean component suppliers. This will require a major paradigm shift in Finland, as well as an increased sense of urgency. At the same time – however - more suitable (technically 4
  5. 5. and from the point of view of approvals and documentation) mid-segment products might have to be developed for the gas and oil offshore business. • Market share of Chinese ship owners increasing: China has undergone major leaps in the field of international finance (foremost through China Development Bank and China Exim Bank) and has not been short of improvements at home either. This will result in a higher market share for Chinese owners and operators of ships and other maritime structures (United Nations, Review of Maritime Transport 2011&2012, Sources 16&17). Recommendation to Finnish companies: currently, most Finnish suppliers work with shipyards focused on foreign ship owners. We should start learning now how to work with Chinese ship owners (mainland China, Hong Kong) and satisfy their needs, unless we wish to become marginalized within this industry. • Regional differences of industry structure between China, Japan and South Korea: Integration (intraregional trade of components) in East Asia is relatively high. The role of China has been assembly, and the role of Korea and (especially) Japan has been the supply of high-tech components and content. Japanese and Korean industrial policies have been “export out/protect in” (World Economic Forum, The Shifting Geography of Global Value Chains: Implications for Developing Countries and Trade Policy, Source 26). The idea has been to let national champions (capable of design and engineering) grow thanks to protectionist measures against foreign suppliers, both de facto and through a very developed sense of favoring national suppliers (and their own, national ecosystem of component suppliers and similar). P.R. China has opted for an accelerated model of developing its economy and even if it is claimed to be protectionist in several sectors, however, it can be considered relatively open, if compared with Japanese “keiretsu” or Korean “chaebol” –based systems. We can as a matter of fact suppose that China could be more open to buying value added services in ship design and engineering than South Korea, for instance. Recommendation to Finnish companies: considering the a.m. differences of business environment, Finnish companies should consider the implications to their business model, partnerships and end-customer relationships. Each East Asian country needs an individual approach. Most probably also a local presence - a Finnish company must become local! • Implications for manufacturing operations in Finland: Strong global signals - supported by studies of global value creation - indicate that some industries are repatriating their production, especially from China (due to higher international forwarding costs, higher salaries in China, and a stronger RMB). However, this is typically possible for countries with large domestic markets, which is not the case of Finland. For Finland and our innovation system it will however be important to maintain part of industrial operations, especially R & D & I, in Finland and nearby countries, since we can hardly maintain our competitive advantage by transferring all production operations to Asia (in the case of shipbuilding, or other manufacturing industries). We need better policies for an improved business climate, better people skills for increased efficiency in manufacturing, and all types of test beds allowing companies to design components and systems so that positive differentiation and competitive edge against Asian and global competitors could be maintained. 5
  6. 6. Recommendation to Finnish companies: At present, Finnish companies have good financing and technological support –related tools, e.g. from Tekes, and VTT. These tools should now be actively and aggressively used for improved work in the field of the shipbuilding and oil and gas offshore industry. Team Finland can assist the partners of Finnish companies to search for local funds for R&D and similar development work. What then are the implications to for the Finnish machinery sector in general? On the basis of the work done we have conducted analysis and drawn analogies with the machinery sector in general, both regionally and globally. Essentially there is a need for a sense of urgency, and a need to better understand competitors and the end customer. The machinery sector is undoubtedly in the very same position. However, East Asian countries are relatively strong in shipbuilding. Hence, there is even more complexity to be addressed. Two more poles of production are required, and an end customer focus is needed in order for success to be achieved. 6
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  8. 8. Contents Executive Summary 4 Contents 8 1 Introduction 1.1 Current project 1.2 East-Asian societies’ main characteristics and effect on value chains 1.3 Changes on a governmental level in P.R. China and South Korea 1.3.1 CPC Party Congress, 8th Nov 2012 1.3.2 Changes in South Korea due to new government 1.4 Regional geographical conflicts 1.5 Role of cross-border business 1.6 Europe and Finland in global business 10 10 11 12 12 13 13 14 15 2 Maritime cluster 2.1 Maritime cluster in Europe; briefly about shipping scenarios 2.2 Current presence of Finnish shipbuilding cluster in East-Asia 2.3 Challenges of Finnish shipbuilders in East-Asia 2.3.1 Sense of urgency 2.3.2 Market entry 2.3.3 Business development 2.3.4 Segmentation, innovation, product adaption 2.4 Basic characteristics of Chinese and Korean shipbuilders 2.5 CAPEX/OPEX/Total life-cycle cost in shipbuilding in East-Asia 2.6 Current and future value chains in East-Asia 2.6.1 Country-specific aspects 2.6.2 Regional aspects 2.7 The sustainability of shipbuilding 2.8 Local and regional content of shipbuilding in East-Asia 2.9 North-East passage and arctic regions 2.9.1 Country-specific aspects 17 17 18 19 19 19 20 20 21 26 27 27 28 28 29 30 31 3 Opportunities for maritime industry in East Asia, according company interviews and the Future Session of 23.4.2013 32 4 Machinery industry in East Asia 33 Sources Appendix 8 34 36
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  10. 10. 1 Introduction 1.1 Current project There is a need for having an East Asia (China, Japan & Korea) -wide approach to understand future value chains and their impact on Finnish business operations. Project organization of this FinNode project will address this challenge first from the specific angle of the shipbuilding industry, and then briefly from the more general point of East Asia business development and integration. Finnish companies have been rather successful in establishing their operations in Eastern China in maritime cluster –related business. An unofficial Finnish shipbuilding club in Shanghai currently comprises 17 companies (Appendix 2); more companies are expected to enter the China marketplace in the future. Several of said companies also operate in Korea and elsewhere in Asia. This project will address the similarities and differences of the Chinese and Korean shipbuilding cluster and understand which specifics may be impeding market entry and business development. Just to illustrate, the relevance of the maritime cluster is enough to confirm that China, South Korea and Japan make about 90-95% of the world tonnage of ships yearly. For budgetary reasons, the current efforts of this study will be mainly focused on China and South Korea. This project will also explore the possibilities of FinNode to address opportunities in a wider geographical scope instead of the current one-country-at-a-time focus. Hence, to summarize; in the first phase, we identify and compare key value chains and players of the maritime sector in respective countries; evaluate the impact of the current and presumed future of value chains for market entry and business development of Finnish ship cluster companies; and, reflect on the reality of the maritime cluster to draw general assumptions about opportunities for Finnish business in East Asia. We also reflect on the current and future nature of East Asian societies and their effect on a small country such as Finland. Goal and Strategic Compliance Regarding this project’s goal and its compatibility with the National innovation strategy and with the strategic objectives of FinNode partners, OSKEs, SHOKs, the following can be stated: The maritime cluster has been a very important single industry in Finland. Additionally, the maritime cluster has offered important and interesting business opportunities for Finnish companies active not only in this cluster but in several other clusters of the machinery industry. Understanding their problems in terms of market entry and business 10
  11. 11. development is very crucial for the Finnish economy and its wellbeing in the long run. Learning can be broadened to a more general context of guaranteeing Finnish success in East Asia in general. In order to incorporate the opinions and needs of the shipbuilding cluster, we have included the Maritime Competence Center (meri-OSKE) and Wärtsilä in the steering group of this project. As well, all related Finnish companies were invited to participate in the Future Session of April 23 in order to hear their opinions and gain their guidance for the project. Project Organization and the way of working Project manager (Finpro) & team: Jari Makkonen (Finpro Shanghai) & Ari Virtanen (Finpro South Korea). Team: Liwei Tan (P.R: China) and Lee Yeon-Mi (South Korea). Steering Board: Ambassador Matti Heimonen, ForMin Korea, Director Teppo Turkki, Sitra East Asia Program; Director Sari Arho-Havrén, FinNode China, Marko Salonen, Head of Finpro Japan and Markus Laurinen, Maritime Cluster Program (Koneteknologiakeskus Turku Oy/ meri-OSKE). Main tasks, schedule, deliverables and cooperation (with FinNode partners, OSKEs, SHOKs etc.): - 1 Future Session was held on April 23 during the project - Steering group held 3 meetings during project guidance - The project will also be used to create the East Asia Team Finland network, and draw up new working methods between all the participants - Deliverables: • Current project report • Documentation of Future Session • Hand-out ``Finnode Common Value Networks East Asia´´ 1.2 East-Asian societies’ main characteristics and effect on value chains East Asian societies share a certain amount of cultural heritage, based on the influence China held over its tributary states in ancient times. The nations of East Asia share common values based on Confucianism. China has also given writing characters to Japan and Korea (later locally modified), and a certain relationship with authority (a higher sense of hierarchy and power distance). When focusing on P.R. China and South Korea, the countries share a lot of common heritage. There are also frequent business contacts (and tourism) between the countries. However, it also seems that the Chinese and Korean people and organizations do not really know each other in the present day, and possibly this is also true concerning a common trust between the two nations. It is necessary to understand the East Asian context when trying to study and exploit regional value networks. To make a bold simplification, the vertical nature of East Asian societies strongly affects the formation of (horizontal) value networks. However, in East Asia there are also differences in terms of developing local economies. This is described particularly well in a recent World Economic Forum report, ``The Shifting Geography of Global Value Chains: Implications for Developing Countries and Trade Policy´´ (Source 26). As a matter of fact, Japan and South Korea are perceived as ``export out/ protect in´´ type economies. This means that they have preferred using protective measures in developing 11
  12. 12. their national champions (important companies and company groups). Instead, China has opened itself more towards international competition and hence been capable of developing its economy faster than other East Asian countries. National champions do exist in China, but companies are definitely more exposed to competition. This is especially true in industrial sectors, which are not defined as strategic industries (which are accessible only for Chinese-owned operations). Examples of the fundamental dynamics, which are very different when compared with "the West”, include the role of "business conglomerates”, which in the case of China are often State-owned enterprises (later “SOE”). In Japan so-called Keiretsu (company groupings) have been developed. Companies belonging to Keiretsu do not own each other but still act as tight company groupings. In South Korea, Keiretsu are called Chaebol, but their fundamental logic is very similar to the Japanese model. National borders still create remarkable mental boundaries. Even though East Asian nations have plenty of history in common, the present day attitudes among politicians, business leaders and citizens alike are often quite distrustful. The respective nations seem to lack knowledge about each other. As a matter of fact the current government of LDP in Japan seems to create even bigger differences of opinion between P.R China and Japan. But as observed in a joint WTO/JETRO report (Trade Patterns and Global Value Chains in East Asia: From Trade in Goods to Trade in Tasks, Source 40) and the Economist magazine ('A Continental Divide' article, May 18th 2013, Source 35), it is obvious that East Asia is relatively good in sharing production and components (intra-regional trade 52 %), almost as it happens in Europe (63 %). Traditionally the roles in Asia have been as follows: both Hong Kong and Singapore are logistics providers; Japan and lately South Korea and Taiwan provide high value components; China´s role has been assembly of end products and exporting them globally. This has led to the situation where China has been put under a lot of pressure to have more balanced trade e.g. with the U.S.A, even if the trade imbalance has been caused by the components mostly produced in Japan or South Korea. This is due to the current shortcomings of trade statistics globally. 1.3 Changes on a governmental level in P.R. China and South Korea 1.3.1 CPC Party Congress, 8th Nov 2012 The effects of the 8th party congress on the maritime industry in China will be most probably felt from H2/2013 and later, since it will take time before the leadership can start executing their own new programs. However, it is clear that several ministries will be restructured and a so-called 'Ocean Ministry' or similar will be created in due course. It is also said that the two main players (groups) of the Chinese shipbuilding (CSIC, CSSC) may be integrated into one group. These groups have respectively 25-30% (CSIC) and 80% (CSSC) of their business in shipbuilding. Finpro has interviewed CSIC in order to gain more insight; this has been used to inform this paragraph and the whole report, as such. For the first time the Party congress has taken a clear stance towards respect of the environment, under the theme of “Beautiful China”. However, this is hardly yet reflected on the daily work of shipbuilding in P.R. China, since the Government is very hesitant to implement changes which might slow down the economy under a climate of global economic malaise. As matter of fact, there is a memorandum of understanding between Tekes and the Ministry of Environmental Protection China on ``Beautiful Beijing´´, trying to use this 12
  13. 13. momentum - but on the other hand, air quality in the capital region is in a state of emergency. This type of initiative might contribute to concrete measures taking place also in the maritime industry and environmental protection. 1.3.2 Changes in South Korea due to new government South Korea has a similar governmental system to the United States. The new president of Korea Ms. Geun-hye Park started only in February 2013. A new government will be formed first half of 2013. Strategy for the next five years will take effect in H2 2013. In interviews, Korean companies were confident that shipbuilding will be continue to be one of the nation's top ten most important development sectors. This can be noted from the interest of government representatives towards arctic offshore and the arctic sea route. President Park has announced the establishment of a new Maritime Ministry (Ministry of Ocean and Fisheries). Korean companies have already succeeded in building the first ice breaking vessels for polar research. It is expected that the national interest in polar areas and the competitiveness of Korean shipbuilding are the main topics of the Maritime Ministry’s agenda. Finpro has interviewed Koshipa (an association of the biggest Korean shipbuilders) for more insight into Korean shipbuilding. The content of this discussion is reflected in this whole report. 1.4 Regional geographical conflicts Globally, there is concern about maritime security and the territorialisation of the seas (FIIA Briefing Paper 130/2013, Maritime Security in a Multipolar World: Towards a Eu Strategy for the Maritime Commons, Source 38). Hence, it is no wonder that there are plenty of regional disputes also in Asia. Just to mention some of them, in the South China Sea and East China Sea there are the Spratly and Paracel Islands, which give origin to disputes between China and the South-East Asian states. Additionally, the situation of Scarborough Shoal was debated in the Philippines (South China Morning Post, Aquino´s clash with China divides analysts, December 30th 2012, Source 4). However, probably the most famous territorial issue lately has been the Senkaku / Diaoyu Island –related dispute between China and Japan. This conflict has greatly harmed the export of Japanese products to China, and the production of Japanese-owned factories as well as the future investment of Japanese companies in mainland China. Hence, the Chinese national interest has obviously been damaged to some extent, too. These and other similar regional conflicts (The Korea Herald, Heeding history in East Asia, November 23rd 2012, Source 8 & FIIA comment 7/2013, Source 10) will probably slow down Asian integration and economic development, to some extent. They will also incentivise to China to develop its naval forces, and encourage the US and its allies to step up their military presence in the region. Regional dispute-solving mechanisms will be needed to help utilization of the resources in the sea bed (oil, gas, fishery, other). On the other hand, some experts presume that P.R China will use the next 10-15 years for building up weapons system around its new aircraft carrier and only then start serious negations about their maritime disputes. 13
  14. 14. There has been signed amongst several Asian countries a Declaration of Conduct (DoC) about 10 years ago. However, China has refused to tackle the matter of Code of Conduct (CoC) –negotiations in the South China Sea. China first expressed its ”nine dotted line” claim in 1947 and will be very unlikely to back down from this in the near future. On the other hand, other countries in the region will stick to their requests on the basis of the UN agreement (UN Convention of the Law of the Sea, UNCLOS). Unfortunately, the other SEA countries also have disputes between themselves and hence this can potentially be exploited by China. China might also use the current situation for building itself into a maritime power, as has also been confirmed by Chinese Ocean Administration Head Minister Liu Cigui. As a matter of fact Liu considers the line of CPC Central Committee ``natural for using the territorial waters of 3 million km2 for the better exploitation of fishery and sea bed resources´´ (oil, gas, other). Liu furthermore claims that China made 720 billion USD of income from maritime–related resources in 2011, but that this can become even 10 % of GDP by 2015. This calculation would include shipbuilding, the offshore industry, fisheries, and ocean shipping. The Ocean Administration may become a Ministry with responsibility for Arctic-related matters as well. There is not yet a clear understanding of what real oil resources exist in disputed areas. However, CNOOC has started drilling for oil south-west from Hong Kong (Dongsha Islands). Interestingly, Taiwan and China have become closer to each other defending “Chinese sovereignty” in some of the disputed areas. ASEAN is working for improving relations and two matters in this respect should be mentioned: In 11/2012 there was established in Jakarta an “Institute for Peace and Reconciliation” in ASEAN, which will give recommendations to its members about solving conflicts ASEAN free trade agreement network enlargement with China, Japan, India, South Korea, Australia and New Zealand for the formation of a ``Regional Comprehensive Economic Partnership´´ ( RCEP). As already stated the LDP regained power in Japan on 16.12.2012, and this will change position of Japan to some extent (to a harder line) on Senkaku, nuclear power, and the relationship with the USA. This might not help solve regional disputes, either. Potentially there could be some Asian interest in how territorial disputes have been solved in the sea area north of Scandinavia (encountered e.g. in South Korea). This will hardly have any effect on Finnish business in the short-medium term, whatever benchmarking work should be done in this field. 1.5 Role of cross-border business Finpro has collected some information about cross-border trade in maritime equipment. The statistics show that Korea’s maritime exports are clearly higher than those of China. However these statistics might be a little misleading since (for example) official Korean and Chinese Sino-Korean import-export figures show great discrepancies. One explanation for this may be that Chinese companies are understating their official exports in order to keep their foreign exchange revenue abroad. In addition, they might exaggerate their imports, thus claiming that they pay more for components and similar abroad than they really do. 14
  15. 15. This, too, is one way to transfer funds abroad and avoid certain restrictions concerning capital movements. There might be some disparity in statistics in the opposite direction as well, for undefined reasons. According to UN statistics, the most important products in cross-border trade for China and Korea are: • maritime propulsion engines and diesel • vessels, not elsewhere specified in 8901-8906, including lifeboats other than rowing boats • other vessels, including warships and lifeboats other than rowing boats • anchors, grapnels and parts thereof made of iron and steel • vessels and other floating structures for break-up. Table 1. Chinese and Korean maritime exports/imports in 2011 Chinese exports in 2011 (million USD) to World 129 787,21 to Korea 6 219,38 Korea's share of Chinese exports 4,79 % Korean exports 2011 (million USD) to World 164 260,76 to China 1 846,62 China's share of exports 1,12 % Chinese imports in 2011 (million USD) from World 7 987,71 from Korea 1 716,28 Korea's share of imports 21,49 % Korean imports 2011 (million USD) from World 7 694,36 from China 2 708,40 China's share of imports 35,20 % Source: United Nations (UN) As a matter of fact, some of a.m. product groups might include ship blocks made by the Korean companies Samsung Heavy Industries and Daewoo Ship and Marine Engineering (and STX in the past). These blocks are transferred to their ship yards in Korea and ships are completed as well as exported as Korean products. 1.6 Europe and Finland in global business IMF statistics show that Asia saves and the West piles up debt. As a matter of fact, this seems to be part of the overall development of China becoming the biggest economy of the world by around 2027 (Goldman Sachs estimate) and BRIC countries having greater GDP than the G7 by 2032. This is easy to believe, since the Chinese economy has been doubling in its size every 7-8 years, whilst the EU has remained stagnant. By 2050 only two European countries - UK and Germany – will most probably be amongst the biggest 10 countries measured by GDP. The a.m. figures are also supported by the demographic figures. China has 21% of the world population, whilst the U.S.A and Europe have 13.9% collectively. China also currently has 25% of the global labor force. Hence, the 21st century will be Asian, and Chinese in particular. The EU’s share of world trade was 25% in 1995 but is now about 20%; this will fall to 10% by 2030! China and East Asia in general have functioned and are functioning under Confucian rule. Currently in China the focus of people is not democracy, but becoming rich. Already Deng Xiaoping said in the past: “Getting rich is glorious”. The role of the state is to provide stability for society and rule well. The role of the individual is to improve his or her life from an economic point of view. This creates a lot of dynamism in the economy, with people being hungry for growth. This is very different from the Nordic conception of the 15
  16. 16. state being omnipotent in guaranteeing us a certain standard of life, regardless of whether we work or not. Furthermore, the Chinese currency (RMB) is expected to become freely convertible within the next 5-10 years. This will impose a strain on U.S. influence on the world economy and make China and RMB a reference point at least in most Asian countries, Africa and possibly in several countries in South America. The Central Bank of Malaysia already uses RMB as a reserve currency. BRIC countries will at this stage promote new financial institutions or alternatively exert much greater influence on the IMF and World Bank group. China Development Bank and China Exim Bank are already bigger financial institutions in many African countries than the World Bank Group. Related to China’s increasingly important role in the world economy, Martin Jacques has written a book “When China rules the world” (2012, Source 46). In his book, Jacques claims: “Caterpillar, Nokia, Ikea and McDonald’s are experimenting with using the RMB in trade deals”. The big question of course also is for us, what this means to the Euro as a currency in the future. The 19th and 20th centuries though were Western, beginning with the Industrial Revolution. This period has created a strong and deeply embedded belief in Western superiority and this might create a strong existential crisis in our society, once we lose our current position. This could be exacerbated by the increasing Chinese influence on international affairs. In fact, the Finnish and Western paradigm towards China still today seems to be that “the Chinese will become like us” once they will gain in wealth. However, this will most probably not happen. China wants to gain position not only economically, but also in political, military, and cultural affairs. They will seek to build overall influence e.g. on the global system of development funding, which currently is mostly built on the “Pax Americana”, system built around the U.S. interest (see also FIIA Comment 3/2013, Source 39). The present international monetary system is presented as a neutral creation based on an abstract universal interest with the USA acting at its head in a disinterested and altruistic way. This is very naive. Possessing the world’s premier reserve currency has permitted instead the U.S.A. to run large deficits by virtue of the fact that those countries exporting to the U.S. have been interested in acquiring dollars for their own reserves. Hence, U.S. has printed money and run a large trade deficit. This period however now seems to be over (“financial cliff” and related problems). Martin Jacques in his book (Source 46) boldly claims as follows: “Europe’s decline…will become an historical curiosity in the manner of Greek and Roman Empires”. As a matter of fact, Minister Stubb referred to the very same matter during his official trip to Shanghai in 2011 by saying: “Europe will become a continent of lifestyle, the US one of military power, and China one of economic power.” However, he also questioned whether we can afford this and maintain our current standard of living. At this very moment, EU seems to be focusing inwards thanks to the credit crunch affecting the whole continent. The effect of the credit crunch might be devastating to European unity in the long run, whilst it can be stated that China has been united already over the past 2.000 years. The a.m. mentioned should be carefully reflected upon in Finland when making future decisions about our country and its development. Also a very important paradigm shift should take place very soon. The authors of this report see no other alternative but to integrate Finland into economic power houses of the future world economy and not only to China, but to all important emerging markets. 16
  17. 17. 2 Maritime cluster 2.1 Maritime cluster in Europe; briefly about shipping scenarios In the U.S. lately there has been a debate about the importance of manufacturing jobs for the country’s innovation system and overall economic performance (MIT, Exploding the myths of manufacturing, 12th May 2012, Source 7). The U.S. added 50,000 manufacturing jobs in January 2013 and hence it seems that the size of the U.S. economy (and some incentives related to the transfer of jobs), combined with the rising fuel cost implied in shipping goods from Asia (as well as rising salaries in Asia), is driving manufacturing jobs back to the U.S. At the same time Europe has maintained market share in some special type of vessels, such as cruisers. Additionally, the European suppliers of maritime components have been able to find new opportunities in offshore oil and gas industries, whilst the construction of merchant ships and container ships has mostly been transferred to Asia. However, competition is getting harder and the Europeans will have a hard time maintain their position in the special products mentioned above. We can however hope that the new market-driven trends, regulatory trends and other trends will give opportunities to maintain and develop maritime–related business. The document “Green growth opportunities in the EU Shipbuilding sector” (Ecorys 2012, Source 6) explores these opportunities, which can be listed as follows: fuel efficiency, higher Corporate Social Responsibility (CSR), nitrous oxides (NOx) abatement, sulphur oxides (Sox) abatement, greenhouse gases (particularly CO2) abatement, ballast water and sediment treatment, offshore renewable energy, and the development of Arctic routes. The market potential of these trends is considered to be a minimum 12.5-15.5 billion Euros per year. These trends are reflected upon in relation to East Asia later in this report. Scenario work on global shipping has been conducted, to interesting results. Wärtsilä has elaborated three different scenarios “Open Oceans; Rough Seas; Yellow River” (Levander, Concepts for the shipping Scenario, 1st November 2012, Source 19 & Shipping Scenarios 2030, September 2010, Source 20 & Barner-Rasmussen, a Sneak Preview of the Future, October 2012, Source 21). Each scenario eventually requires new or modified types of vessels (or components, e.g. fish-tail propulsion system), but referring to the East Asia study, South Korea might lead the quest for new vessels, closely followed by the Chinese when they increase in their capacity for innovation (“Innovated in China”, instead of “Assembled in China”). The Sustainable Shipping Initiative (SSI) vision 2040 signatories have committed themselves to certain principles according to which they commit to develop their own 17
  18. 18. operations. The vision is taking a strong stance towards resource efficiency, innovation, and sustainability in general (Forum for the Future 2011, Source 22). There is no particular East Asia stance and hence we do not reference the matter further in this project. Third scenario to be mentioned is the DNV scenario (Shipping 2020, Source 24). DNV identifies its own set of scenarios (“Full steam ahead; Knowing the ropes; Sink or swim; in the doldrums”). This document seems to take a stance on very concrete options related to what might happen in the shipbuilding market and component business (both new and retrofit), when certain scenarios take place e.g. regarding energy price. The interesting (IHS and Global Insight and SAI data 2012) forecast outcome seems to be that already by 2015 the shipping market will recover and improve in volume in all categories (dry bulk, liquid bulk, container, general cargo). This seems to coincide with the peak year of restructuring of world shipbuilding capacity. Possibly so-called BRICKTIM –countries (Brazil, Russia, India, China, Korea, Turkey, Indonesia, and Mexico) will be responsible for most of the growth during this period. Should this growth take place, it would mean that the fleet would grow (according to IHS Fairplay) by 20% annually until 2020. This would mean 1,700 – 2,000 new vessels built per year. In the DNV analysis is the interesting topic of “China building up a self-sustaining supply chain between itself and the developing nation trade partners.” This means most probably that Chinese owners take up higher and higher market share of ship ownership. Another piece of interesting information from the report is that when discussing investment in new technology, the demanded payback time for 75% of owners is within five years. 25% demand a payoff within two years. This is very short, considering the life-time of a vessel to typically be 20-30 years. 2.2 Current presence of Finnish shipbuilding cluster in East-Asia Finpro has collected some of the Finnish offering (shipbuilders, component and system suppliers, planning & architectural services, R&D, educational services) in the list as per Appendix 1. Additionally we list companies comprising the Shanghai Finnish Shipbuilders club (``Laivanrakentajien klubi Shanghai´´) as per Appendix 2. We also refer to Finnish Marine Companies in China 2011 –publication (Source 18). Some of the Finnish shipbuilding related companies have been interviewed by telephone in China, Finland and South Korea for more insight about their market entry in respective countries and the future challenges they face in terms of business development. The interview memoranda are not public but they were used in the preparation of the future session of April 23 as well as various chapters of this document. The general impression of the future trend of market entry and business development looks as follows. China will actively develop opportunities both in shipbuilding and offshore oil and gas. South Korea and Japan will receive a lot of attention but their companies will concentrate on existing customers and partnerships, believing the AM markets are less open to market entry. Other Asian markets will receive some attention too (Indonesia, the Philippines, Malaysia, and Vietnam) with India being a notable exception. Singapore is of course a very hot market for offshore oil and gas and Australia is especially interesting as an end customer. As agreed about the scope of this work, we will not address offshore oil and gas, but we would like to refer to the document financed by ELY-Center and LOURA, “Suomen offshore-toimiala 2012” (Source 23) as good reference for Finnish actors in this interesting sector. 18
  19. 19. 2.3 Challenges of Finnish shipbuilders in East-Asia We have interviewed several Finnish companies present in China and South Korea; as well, some companies only present in Finland with production operations were contacted and interviewed. All interviews were made confidentially and we cannot disclose their exact content. Furthermore, Finpro makes hundreds of client assignments with Finnish companies in Asia and hence, know-how and understanding from this work was also used to produce this report. 2.3.1 Sense of urgency The Asian economies have gone through a very rapid growth period, with the Chinese economy doubling in size every 7-8 years, for instance. This creates expectations not only amongst individuals, but also companies, which might differ radically about European or Nordic expectations. This growth in China has not been fully exploited by all Finnish companies since some Finnish companies unfortunately seem to use China only as a basis of low cost production instead of using it as a source of new customers. This will limit their growth and expose them to harder competition in the long run if we do not learn to sell our products and services better to qualified Chinese end customers (e.g. oil companies, shipping companies). China´s salary cost and other related costs are risking putting China into so-called a middle income trap. As a consequence China will within next 3-5 years climb in the higher ladders of the value chain unless they want to face a great deal of economic trouble. At the same time, the basis for the Finnish “low-cost production site” in China will vanish. Regarding the sense of urgency, the testimony both of companies and Finpro is that there seems to be a very big gap between the sense of urgency of our Asian customers and the Finnish headquarters of industrial companies. In the future there will be even less justification for typically slow Finnish decision making. As a matter of fact one of the common saying in Korea is “ppali, ppali”, meaning “hurry, hurry”. It is very common that Chinese and Korean clients want service at random times (late evenings and Saturdays) and with their own language via telephone. Buyers expect that even foreign companies fulfill this requirement. There is also very little understanding in East Asian countries for long European holidays. Since people in Asia often have only 3 to 5 days holiday per year it is difficult to understand why there are no people working and giving service in Finland during the month of July. This is one big reason why Finnish companies have or should have local representatives in respective markets, which live in the rhythm of the local market. 2.3.2 Market entry It seems that there is a need for physical presence no matter whether you sell or buy products. It seems that there is a need for physical presence no matter whether you sell or buy products. Companies claim they need to be local to delivery timely local customers. Joint ventures exist in some fields of maritime operation, but surprisingly, the interviewed companies often did not refer too much to request of local content as a problem or particular challenge. Some Finnish companies have been present in the Chinese market for a very long time. Outside the maritime cluster we can mention Metso Paper Machines, who this year celebrate their eightieth year in China. Even some SME companies started direct export to China in the 1980s and established their own local operations in both countries of this study already several years ago. Those companies not already on market with own 19
  20. 20. operations, but considering their cases should be very important when examining the pros and cons of entering China or Korea. Low cost definitely is not going to be the motivation. 2.3.3 Business development The crisis in shipbuilding has been very profound both for China and South Korea. Both prices of ships as well as volume (number of ships built) have been in free-fall for several years. The shipbuilding sector is undergoing major restructuring in South Korea, as is wellknown through the case of STX. At the same time in China we have come into a situation where only 200 shipyards out of 1600 have new orders. This has made the Chinese government push Chinese banks to give more and more loans both shipyards and shipping companies. Hence the Chinese shipping companies are increasing their ownership of the global fleet (see also United Nations Publications, Review of Maritime Transport 2011&2012, Sources 16&17). Despite the crisis, shipbuilding-related business development did not seem to gain very much attention from Finnish companies. Probably the worldwide crisis has made companies lose optimism about opportunities in new customer segments in China or Korea. This is a pity since we should be learning quickly about how to supply local end customers with our products and services, especially as they increasing their market share of ownership. Offshore oil and gas however is getting more attention and some Finnish shipbuilding – related companies are improving their technical capabilities (technical documentations, approvals, other) in this sector. However, the new situation in the United States regarding shale gas and oil might make many offshore-related products unprofitable and hence make it much more difficult for equipment suppliers to work profitably in this sector. The Future Session of April 23 seems to indicate an interesting Chinese opportunity which might also exist in several other countries in the world. A so-called policy of 'Go West' in China will mean that the Yangtze and Pearl Rivers might gain in importance and this may create new opportunities for companies involved in shipbuilding and related sectors. 2.3.4 Segmentation, innovation, product adaption Finpro's experience is that market segmentation is one of the most challenging topics for Finnish companies. There are two reasons for this. First of all, the Finnish market itself (and several other European markets) are so small that one simply cannot select customer segments, but try to serve all segments with basically the same solutions. Secondly, the Finnish way of working is product-oriented and technology-oriented. We are less interested in end customers and in niche segments. The enclosed graphic made by Finpro with the kind collaboration of Kristian Möller of Helsinki Business School (Aalto University) illustrates the challenge clearly. Picture 1. Market segmentation to B2B ( Appendix 4) 20
  21. 21. This challenge of segmentation is even more difficult for companies who are interested in developing industrial services since the service business might be completely different in mid, low-mid, and low-low segments than it is in the high segment. Also a very big surprise for Finns is the time span end customers use when buying industrial products. One example from the world of industrial automation: European end customers buy automation systems with a scope of using them for 15-20 years, but Chinese buyers purchase them with the idea of operating them for 5 years. This clearly makes payback period-related considerations of end customers very different in the case of Asia. There seems to be some systematic work done in localizing part of R&D at several Finnish shipbuilding–related companies, but systematic innovation together with end customers and other stakeholders (e.g. Universities) seems not to be very common. Especially, Finnish Universities related to shipbuilding seem to excel with their absence. This is natural since there is very little attention given to new segments or to new customer groups. Production and end customers seem to be more and more concentrated on emerging countries (BRICS and other). It is hard to believe that we would not need more product adaption in the future on the products designed in Finland for the high segment. We hope that Finnish companies will seek out potential partners more aggressively in China (VTT, Tekes, other). 2.4 Basic characteristics of Chinese and Korean shipbuilders Hellenic Shipping News (Shipyards looking to trim capacity as demand slows down, 7th May 2012, Source 13) makes predictions on global production capacity, quoting that the most probable needed capacity cuts will take place in Europe and in China. According to this information (Hellenic also referring to Danish Ship Finance, Shipping Market Review April 2013, Source 41) global capacity will return to the level of 2008 by the year 2014. This would mean closing of parts of shipyards, closing some structures within given yards, and converting some new shipbuilding yards to repair yards. Global yearly capacity in 2011 was said to be at 63 million cgt out of which China held 23 and South Korea 18 cgt (big yards figures). Thomson-Reuters based information (Source 34) suggests that Chinese shipbuilding going to face major restructuring between 2013 and 2015 and leave a very small (10) number of shipyards supplying over 70% of the Chinese output of vessels. The 21
  22. 22. reason for the dramatic restructuring is very clear. Even the best companies are under lot of strain. China Daily on March 2, 2013 (Profits hit as shipbuilders enter the choppy waters, Source 15) reported falling profits; CSSC made a net profit margin of just 1% in 2012, and actually experienced massive losses during the last quarter of the year in question. Number, ownership of shipyards in China In China, statistical information about shipbuilding is not very accessible. According to the China Association of the National Shipbuilding Industry (CANSI), there are 1536 shipbuilding related enterprises, out of which 200 are medium-sized or large companies according to Chinese standards. 43 of them are making most of the volume of shipbuilding according to CANSI. The below-mentioned statistics are mostly coming from these 43 companies. The Chinese magazine Worldship has made its own investigation and lists the most important 629 shipyards on its website. They classify shipyards according to ownership as follows. There are 105 state-owned shipyards; 20 foreign whole-owned shipyards; 44 joint venture shipyards and the remaining 460 are private (Table 2). Table 2. Shipyards in China (%) Source: Worldship The theoretical annual production capacity of these 629 shipyards is 249 million DWT (Table 3). It is a fact that state-owned shipyards have easier access to financial support from the government and hence they obtain more orders compared to other shipyards. State-owned shipyards normally contribute half of the total completed orders. Table 3. Annual production capacity of shipyards in China (%) Source: Worldship 22
  23. 23. Number of shipyards and their employment breakdown in Korea In South Korea the shipbuilding industry is much more concentrated than in P.R China. According to the Korea Offshore & Shipbuilding Association (KOSHIPA), there are 92 shipyards in South-Korea. Nine of them are large-scale shipyards and members of KOSHIPA (KOSHIPA Shipbuilding Korea 2012, Source 29), and the rest are small and medium sized shipyards. 76 shipyards among the rest are members of the Korea Shipbuilding Industry Cooperative (KOSIC). KOSHIPA member shipyards hire 86.2% of the total workers in the shipbuilding industry in Korea while KOSIC member shipyards hire only 1.7%. Most Korean shipyards are located in the Busan, Gyeongnam, and Jeonnam areas. Table 4. Number of shipyards in Korea and their employment Source: KOSHIPA Market share of Chinese and Korean shipbuilders According to Clarkson Research, Chinese shipbuilders completed orders (output) of 21.41 million CGT (Compensated Gross Tonnages) in 2011; new orders were 13.05 million CGT with an order backlog of 48.16 million CGT. Corresponding market shares were 42%, 42.9% and 41.6 % respectively. The latest report shows that Chinese shipbuilders produced 17.49 million CGT of new vessels in the first eleven months (January - November) 2012, down 18.2% year-on-year; new orders plummeted by 49.4% to 6.52 million CGT. By the end of November 2012, China had 33.37 million CGT of orders in hand, down 30.3 percent compared to the same period in 2011. Please note that China shipbuilders like to use DWT (Deadweight Tonnage) for measurement and domestic statistical data. However, when we need to compare data with other countries, CGT (Compensated Gross Tonnage) must be used. In 2011, the total value of new orders was 90 billion USD. South Korean shipbuilders took a 53.6% share (48.2 billion USD) and Chinese shipbuilders took 32.2% (29 billion USD). Table 5. Three indicators of world shipbuilding in 2011 Indicators/Country Completed Orders (Output) Million DWT New Orders Million DWT Million CGT Worldwide China S. Korea Japan 170,02 100% 51,00 100% 76,65 45,1% 21,41 42% 52,91 31,1% 15,98 31,3% 31,82 18,7% 8,94 17,5% 69,42 100% 36,22 52,2% 26,56 38,3% 2,89 4,2% 23
  24. 24. Million CGT Order Backlog Million DWT Million CGT 30,45 100% 13,05 42,9% 12,37 40,6% 1,49 4,9% 346,10 149,91 110,70 53,15 100% 43,3% 32,0% 15,4% 115,88 48,16 34,85 14,01 100% 41,6% 30,1% 12,1% Source: CANSI (China Association of the National Shipbuilding Industry) Table 6. Three indicators of world shipbuilding in Jan. – Nov. 2012 Indicators/Country Completed Orders (Output) Million DWT Million CGT Million DWT New Orders Million CGT Order Backlog Million DWT Million CGT Worldwide China S. Korea Japan 144,41 100% 43,01 100% 60,51 41,9% 17,49 40,7% 46,76 32,4% 13,14 30,6% 27,84 19,3% 7,68 17,9% 39,85 100% 18,76 100% 16,72 42,0% 6,52 34,8% 11,88 28,9% 6,05 32,2% 9,00 22,6% 2,84 15,2% 262,57 111,05 69,03 58,57 100% 42,3% 26,3% 22,3% 93,31 33,37 28,47 15,73 100% 35,8% 30,5% 16,9% Source: CANSI (China Association of the National Shipbuilding Industry) Table 7. New orders structure in China in 2011 (CGT) Source: CSERC (China Shipbuilding Economy Research Center) Table 8. New orders structure of South Korea in 2011 (CGT) 24
  25. 25. Source: CSERC (China Shipbuilding Economy Research Center) Concentration of shipbuilding business in terms of number of top players Industry concentration in P.R China is rather low. The top five shipyards take 40% of total production capacity. This figure is 60% in Korea and 70% in Japan. The two major shipbuilding conglomerates in China are CSSC and CSIC. China State Shipbuilding Corporation (CSSC) China State Shipbuilding Corporation (CSSC), established on the 1st of July 1999, is a huge conglomerate and state-authorized investment institution directly administered by the central government of China. CSSC's main business is shipbuilding, covering both naval and civil products. As for naval ships, CSSC is capable of building various kinds of warship and auxiliary vessel as well as related equipment for the Chinese Navy. In the field of civil ships, products include oil tankers, bulk carriers, LNG carriers, VLCCs, chemical carriers, Ro-Ro passenger freight ships, container ships, large LPG carriers, loading ships, high speed ships, and various civil ships and offshore engineering facilities. CSSC is also expanding into non-shipbuilding businesses fields as shipping, aerospace, construction, power generation, petrochemicals, hydraulic engineering, environmental protection, metallurgy, railways, light industry, and so on. CSSC has a total of 60 property and shareholding enterprises, including a group of the most powerful Chinese shipbuilding and ship-repairing yards, research and design institutes, maritime-related equipment manufacturers, and trading firms. Some CSSC shipyards: • CSSC Guangzhou Huangpu Shipbuilding Co., Ltd • CSSC Jiangnan Heavy Industry Co., Ltd. • Guangzhou Wenchong Shipyard Co., Ltd. • Guangzhou Shipyard International Co., Ltd. • Hudong-Zhonghua Shipbuilding (Group) Co., Ltd. • Shanghai Jiangnan Changxing Heavy Industry Co., Ltd. China Shipbuilding Industry Corporation (CSIC) China Shipbuilding Industry Corporation (CSIC), established on 1st July1999, separated from the former China State Shipbuilding Corporation (old CSSC). CSIC is a leading stateowned business and one of China’s largest shipbuilding and ship-repair groups. Its maritime business covers both naval and merchant ships, and equipment manufacturing. The merchant ships including tankers, chemical and products carriers, bulk carriers, container ships, ro-ro vessels, LPGs, LNGs, offshore and other special vessels, and 25
  26. 26. equipment. CSIC also designs, develops and manufactures a wide-range of non-maritime products covering five industry sectors: energy, transportation, electronic information, large turnkey equipment, and materials trading. CSIC has 3 listed subsidiary companies, 46 industrial enterprises, 28 scientific and technological research institutes, 5 regional companies, 6 functional companies and 8 overseas offices. The listed subsidiary company China Shipbuilding Industry Co., Ltd., consists of 32 companies. Some shipyards of CSIC and related organizations: • Dalian Shipbuilding Industry Co., Ltd. • Bohai Shipbuilding Heavy Industry Co., Ltd. • Wuchang Shipyard • Shanhaiguan Shipyard • Qingdao Beihai Shipbuilding Heavy Industry Co., Ltd. • Dalian Maritime Diesel Works • China Ship Research & Development Academy • China Ship Scientific Research Centre. Current and foreseen activities in mergers and acquisitions Since the global financial crisis began in 2008, the Chinese shipbuilding industry has experienced widespread losses and numerous small shipyards are now teetering on the brink of bankruptcy. Industry consolidation is already taking place and will continue into the coming years. In South Korea, STX will face major restructuring or integration into another shipbuilding group. This is also causing huge problems for shipbuilding industry in Finland (in construction of cruise ships according our tradition). Korean shipbuilding companies will probably select the option of developing their own existing operations, whereas Chinese companies may become much more aggressive in the field of mergers and acquisitions, especially in Europe. 2.5 CAPEX/OPEX/Total life-cycle cost in shipbuilding in East-Asia As previously discussed, Finpro has interviewed both Koshipa (association of major Korean shipbuilders) and CSIC (one of the two SOEs in shipbuilding in P.R. China) to acquire understanding about important issues in shipbuilding. Total cost of ownership has not yet become the top theme since shipyards have faced the situation of constantly falling sale prices. However it is obvious that shipping companies operating fleets of container ships (e.g. Evergreen) are already paying a lot of attention to the energy efficiency of their current and future fleet. Additionally, the developing U.S. regulation of emission control cannot leave anyone untouched; most vessels visit U.S. ports on a yearly basis, and some more frequently than that. In this respect the Korean shipbuilders are much better equipped to design energy efficient ships. Chinese players instead have to buy their know-how on ship design. The high-end theme of “resource efficiency” seems not be high on the agenda of shipbuilders themselves right now. In Finnish company interviews however, we noticed there are end customers (Toyota, Wal-Mart) who will be applying a lot pressure in this direction in the future. When interviewing Finnish companies in their business in China and South Korea it was quite evident that most of their customers (mostly shipyards) are very CAPEX-oriented, and hence very price-oriented. 26
  27. 27. When discussing this situation in the Future Session however, we noticed that in the case of some special ships, South Korean suppliers (shipyards) are already prolonging delivery times and increasing the prices of vessels. This might mean that in the case of ``non-bulk`` vessels there may be a growing focus on OPEX-related themes which might favor some of the Finnish suppliers. However, we need to improve our know-how on customers and their end business (how they make money) if we want to truly discuss OPEX-related matters with them (see also appendix 5 based on Vectia). 2.6 Current and future value chains in East-Asia 2.6.1 Country-specific aspects Manufacturing competitiveness will have an effect on current and future country and regional –specific value chains. According to Deloitte (Global Manufacturing Competitiveness Index 2013, Source 25), China is the most competitive country in the world, followed by Germany, the U.S.A, India, and South Korea. Japan was 10th in the 2013 report. However, it will be interesting to see, how China will manage its “middle-income trap” (see also Businessweek, Stan Shih on Taiwan and China, Source 36). Value chains in shipbuilding on a general level are of course very similar everywhere. However, there may be huge local differences in terms of industry concentration and technological level, and hence the type of ship built as well as level of integration or outsourcing of ships. South Korean shipbuilders confirm to have around 92 percent of domestic content in shipbuilding, whereas in offshore business the same content is at level of 20 %. In the case of P.R China the local content of shipbuilding may be similar to Korean levels but we must bear in mind that Korean firms are building ships with higher technological content. It is in fact astonishing how quickly South Koreans have increased their offshore business. According one information release from the Ministry of Knowledge and Economy, South Korean firms increased their offshore business value from 13.7 percent (8.8 billion dollars) to 27.1 percent (17.6 billion dollars) between the years 2010 and 2011. In merchant shipbuilding, price competition will probably continue to be fierce. Hence Korea is targeting greater and greater specialisation in order to find ways of competing on the basis of quality and technology, rather than price. This is seen as the only way to compete with Chinese shipbuilders. The largest companies in Korea also try to find their own winning strategy to compete or rather coexist with each other. Value chain seems to differ nowadays among Korean companies. Traditionally Korean conglomerates made everything themselves. However, specialisation and concentrating on higher technology solutions have made them collaborate increasingly with leading companies in the world of offshore, arctic, cruise ships, green ships, and other special vessel areas. In this way they are offsetting their own thin know-how in Korea. Usually, Koreans seem to work well together with leading design companies such as Technip, National Oilwell Varco, Aker Solutions, Deltamarin, or Aker Arctic. 27
  28. 28. 2.6.2 Regional aspects In general we can state that regional integration and the sharing of components is relatively high and almost at the level of Europe. In the case of shipbuilding it is difficult to find exact statistics but presumably Korean suppliers of components are supplying the Chinese market in particular. They also look to be increasing their market share at the expense of European suppliers, according to some Chinese and Korean shipyards interviewed for this project. This is possible because their segmentation and price positioning is somewhat lower than European firms, and their products are as ``good enough´´ by shipyards operating under price pressure. STX had an operation of almost 30 000 people near Dalian but this has now been closed and seized to Chinese thanks to the economic difficulties of STX Group. Furthermore, the increasing salary conditions of P.R China lead us to presume that Korean companies might source welding to less costly countries in the region (eg. Indonesia, the Philippines). 2.7 The sustainability of shipbuilding There is an important general aspect to shipping globally, which will also affect the supply of components of vessels and similar. In Europe the discussion about sulphur oxides (Sox) abatement regarding ships, especially in so-called SECA countries – Baltic Sea, North Sea, English Channel, and coastal areas of USA and Canada – has been hot. This will mean increased costs imposed on the Finnish economy (see Talouselämä 40/2012: Kenen vika?, Source 1). The Baltic Sea will face such regulation from 2015 (sulfur from 1% to 0.1%), and the same should apply to other SECA regions. Currently very little has been implemented in Finland regarding Sox and as a matter of fact, only one (1) ship has installed Sox abatement equipment (Helsingin Sanomat 29th March 2013, Source 9). Globally there should be stronger limits imposed around 2020-2025 (from 3.5% to 0.5 %). However, international regulations do not apply to cabotage (local sea traffic) and hence the effect of lower sulphuric content of the fuel for sea-going vessels will be thus limited. One interesting aspect regionally is that in Hong Kong already 13% of ships visiting the city are in the low-sulphur scheme, meaning that the government provides them a rebate of 50% on port dues. This offsets about 30-45% of the higher fuel cost (South-China Morning Post 29.12.2012 & 1.1.2013, Sources 3 & 37). In case of container ships this share might be up to 25% of vessels, a surprisingly high figure. We must though bear in mind that the very same vessels might burn other types of fuel when found elsewhere in the world. The most recent issues among Korean shipbuilders have been environment-friendliness and fuel efficiency in order to meet future demand from ship owners and stay competitive in a global market where Chinese rivals are catching up fast. Chinese shipbuilders are clearly behind in terms of design and technological content. In fact, Korean companies are closely following regulatory changes in the world and have started to develop ships to meet 2015 Northern European standards, for instance. Another driving force has been the high price of fuel. This affects both ship design and fuel type but also puts a burden on the Korean energy sector. Korea is trying to secure its position in the petrochemical and energy sectors. Korean companies own and carry part of the world’s LNG supply. Hyundai and STX are also shipping companies. The four biggest ship builders have also developed windmill technologies. Besides their own windmills, they build windmill installation vessels and floating windmill power units. 28
  29. 29. The decision of Japan to abandon nuclear power will possibly affect shipbuilding and give opportunities to build more (and different types of) ships transporting LNG and LPG. However, it remains to be seen if the new Japanese government will reconsider the decision made about their country´s energy sector. China will remain a net importer of energy (oil, gas, and coal). There is a lot of talk about investment into solar and wind power but China relies on the consumption of energy made from coal. This remains very problematic since there are huge challenges in terms environmental pollution. The following slide of Cleantech Finland for China is very illustrative on the “big picture.” Picture 2. Some key figures of emissions producers in China 2.8 Local and regional content of shipbuilding in East-Asia To our understanding there is no regional content requirement in shipbuilding as such. However, according to some interviews with Chinese shipbuilders, it seems as though Korean and Japanese component and system suppliers are winning market share right now in China. This might be thanks to their supposed lower position in market segments relative to Western suppliers. (See also notes on the segmentation challenges as per Appendix 4 “Market segmentation for B2B.") Normally, shipbuilders prefer to use local suppliers due to price and delivery time considerations. However, because of quality concerns in certain marine equipment fields, European products still take major market shares in China. In addition to shipbuilding, steel plate and other basic materials, engines, electronic control equipment and other components considered to be at the "heart" of ships, are generally imported from abroad. Domestic content for Chinese shipbuilding is less than 50%. This figure also contains 29
  30. 30. products produced by foreign joint ventures or totally foreign-owned companies on Chinese territory. In the two other major shipbuilding countries, Japan has a localization rate of 98% and South Korea over 90%. Although the China National Development and Reform Commission and the National Defense officially released the "long-term shipbuilding industry development plan (20062015)" in 2006, supporting industries are still seriously lagging behind the targeted 80% localization rate of maritime equipment of 80% 2015. Theoretically, there exist several effective incentives for increasing the role of local content in shipbuilding. They can be related to taxation, the financing of ships built, or other incentives. A mindset can be also built into local shipbuilders in low-low or low-mid segments, so that domestic suppliers of components and systems are automatically favored compared to foreign ones. Some governments such as Liaoning and Jiangsu Provinces, in which many shipyards are located, have in fact raised relevant policies to support local maritime equipment manufacturing by funding support and preferential tax treatment. However these policies seem only favorable for relevant products manufacturers, whilst users including shipbuilders and ship-owners cannot benefit from it. Finnish companies evaluating local manufacturing opportunities could eventually enjoy these benefits, too, should they negotiate with the local government in order to get them. This also explains why Chinese shipbuilders prefer to import the core equipment of ships from Germany and North-Western European countries, resulting in high procurement costs. During the previous shipbuilding boom, Chinese shipyards could more freely select suppliers, since there was relatively little pressure on profit margins. The famous brands, global services, and good reputation of foreign ship content providers easily gained appreciation and acceptance both from shipyards and ship-owners. The global shipbuilding market depression, new standards issued by IMO, CNY currency appreciation, and rising labor and material costs, have quickly brought new challenges to Chinese shipyards, especially in terms of price competitiveness. According to a professional procurement expert in the shipbuilding industry, Chinese shipyards are buying more and more products from South Korea instead of Europe. The main reason is that the price-performance ratio of Korean maritime equipment is high. Their price seems to be generally about 30% lower than European products, and with only a small difference in quality. Compared to Chinese products, their price could be 20-30% higher, but with much higher quality. When using defect rate as the criterion for evaluating quality, the defect ratio may be around zero for European products, 2-3% for Korean products, and 10-15% (or higher) for Chinese ones. This example might be an oversimplification, but Chinese local manufacturers are indeed lacking in key manufacturing technologies, such as casting, forging, welding, digital processing, materials technology and heat treatment, and when buying components, they have become much more pricesensitive than before. 2.9 North-East passage and arctic regions North Finland (Lapland) and Barents have recently been the focus of business development in new and current projects related to mining and other natural resources. This has also increased Finnish interest in the North-East passage and the possibilities it would offer in 30
  31. 31. serving China and other emerging markets. This potential new route would require a new train/rail infrastructure in Lapland (see Jäämeren rautatie, Source 32). However, it is clearly seen that projects in the Barents Sea seem to face continuous postponement (Shtokman gas field, other). This is comprehensively discussed in the FIIA Briefing paper 127 from April 2013 (Artic economic potential, Source 33). On the basis of the materials reviewed for this project, the imminent growth of NE passage into a transport route will not happen in the foreseeable future. 2.9.1 Country-specific aspects On 31st July 2012 Aker Arctic announced a project with the State Oceanic Administration of China (SOA), Chinese Arctic and Antarctic Administration (CAA) and Polar Research Institute of China (PRIC) (See source 12, press release). The intention is to build an advanced new icebreaking research vessel to meet the increased need for polar research. Aker Arctic will provide conceptual and basic design for the vessel. There is lot of recent interest in the Arctic region from P.R. China, and related seminars and policies seem to be under immediate preparation. Concrete steps in bringing the Arctic region closer to China also exist. The China Civil Engineering Construction Company – normally active in Africa with rail infrastructural projects – has signed an MoU with the Republic of Komi. The intention is to build a new and far shorter link between Siberia and the Ural region via the Russian northern port of Arkhangelsk (Barents Observer, China jumps aboard a Russian Arctic-bound train, November 27th 2012, Source 5). Finland has recently set up a FIIA –led project focusing on critical maritime infrastructures in the Arctic and Baltic Sea, using Scientific Advisory Board for Defence (MATINE) funding (FIIA Newsletter 4/2012, Source 11). South Korea has probably been following the development of Arctic opportunities for a longer time than P.R. China, due to the mere fact of being a smaller country and one more dependent on its ability to seize new opportunities abroad. 31
  32. 32. 3 Opportunities for maritime industry in East Asia, according company interviews and the Future Session of 23.4.2013 The Future session was called for April 23 and invitations were sent to all Finnish shipbuilding –related companies and many related stakeholders. Participants (Appendix 3) discussed the findings of the study, with many discussions being recorded and shared between them. For the purpose of the Steering Group final workshop, the following opportunities and phenomena were discussed and reflected upon: • China Go West- politics and opportunities along the Pearl River and Yangtze River (new vessel types, infrastructure) • Two East Asian growth models and their influence on our business development: ``export out /protect in`` (South-Korea, Japan) and the model of open competition (China) • Lack of university co-operation between Finland and China (whilst other Scandinavians active) • Challenge of segmentation (low-low, low-mid) and focus on customers instead of pure technology • Maintaining local production and service production in Finnish hands • Joint Maritime service point to maintain contact with local stakeholders (Team Finland) The enclosed opportunities can be seized in many ways. The current document and other material will be delivered to companies present in Shanghai (Laivanrakentajien klubi) and to companies who participated in work in South Korea. The authors hope that the outcome is shared with the HQ of each company and used in planning over the coming years. Learnings of this report can and should be reflected in the planning of future business development work in East Asia, and also globally. The authors of this report will also actively offer the report to Fimec and Meriteollisuus ry for their reflection and future work on the topic. In this context – and in future Team Finland work in P.R. China and in South Korea – the opportunity of a service point for Finnish companies shall also be reflected upon. Future hand-outs shall be shared with all companies in the machinery sector having contacts with Team Finland in Asia. 32
  33. 33. 4 Machinery industry in East Asia The market situation, along with opportunities and recommendations for Finnish maritime industry companies, have been widely discussed in the executive summary as well as in the content of the report itself. Now, the question should be whether the maritime sector and machinery in general principally differ from each other. Asia and emerging economies in general will acquire more importance as end-customer markets and producers of B2B and B2C products. However, the dominance of East Asian countries is already overwhelming within the maritime industry. In other industries there may be global powerhouses who offer equal or bigger opportunities than East Asia. These specifics must obviously be studied and understood in each industry individually. However, the topics raised in this report remain universal for any machine-building industry. To summarise, they are: • Sense of urgency: emerging economies grow quickly; Finnish companies seeking to operate in them cannot be slow in their decision-making. • Need to understand the business of end customers, improve market segmentation, and design solutions for local customer needs. • Need to be present in the market and live in the rhythm of the end customer and its distribution channels – ie. becoming local. Sometimes this can be achieved through a good local network of distributors and other stakeholders, but more often through having one's own commercial operation or even local manufacturing facility. • Need to understand the specifics of each country and not oversimplify the modes of market entry or business development. • Benefit from scenario work done by stakeholders. DNV scenario work, for instance, should be a 'bible' for companies producing components for shipbuilding and offshore oil and gas. Similar documents most probably exist in other industries and can be found and referred to. 33
  34. 34. Sources 1. Lähteenmäki, Pekka (2012). Kenen vika? . Talouselämä 40/2012. 2. Kankare, Matti & Nivaro, Heikki (2012). Valonpilkahdus tulee mereltä. Talouselämä 40/2012. 3. Wallis, Keith (2012). 13pc of Big Ships Registered with Low-sulphur Scheme. South China Morning Post. December 29. 4. Robles, Raissa (2012). Aquino´s Clash with China Divides Analysts. South China Morning Post. December 30. 5. Staalesen, Atle (2012).China Jumps Aboard a Russian Artic-bound Train. Barents Observer. November 27. 6. Ecorys (2012). Green Growth Opportunities in the EU Shipbuilding Sector. April 5. Rotterdam, the Netherlands. 7. Dizikes, Peter (2012). Exploding the Myths of Manufacturing. MIT News. May 10. 8. Han, Seung-Soo (2012). Heeding History in East Asia. The Korea Herald. November 23. 9. Pohjanpalo, Olli (2013). Suomalaislaivoihin asennettu vain yksi rikkipesuri. Helsingin Sanomat. February 21. 10. Gaens, Bart (2013). FIIA Comment 7/2013. The Finnish Institute of International Affairs. March. 11. The Finnish Institute of International Affairs (2012). FIIA Newsletter. 4/2012 December. 12. Aker Artic (2012). Aker Artic to Design the First Chinese Polar Research Icebreaker. July 31. 13. Hellenic Shipping News (2012). Shipyards Looking to Trim Capacity as Demand Slows Down. May 7. 14. GQ.COM.AU (2013). Water Wonderland: How to Tackle the Amazon in Style. Australia. May. 15. China Daily (2013). Profits hit as shipbuilders enter choppy waters. March 27. 16. UNCTAD (2012). Review of Maritime Transport 2012. UNITED NATIONS PUBLICATION. 17. UNCTAD (2011). Review of Maritime Transport 2011. UNITED NATIONS PUBLICATION. 18. Finnish Marine Companies in China (2011). 19. Oskar Levander (2012).Concepts for the Shipping Scenario. Twentyfour7. November 1. 20. Wärtsilä (2010). Shipping Scenarios 2030. Wärtsilä Corporation. September. 21. Barner-Rasmussen, Lena (2012). A Sneak Preview of the Future. Twentyhour7. October. 22. Forum for the Future (2011). Sustainable Shipping Initiative Vision 2040. November. 23. PRIZZTECH (2012). Suomen offshore-toimiala 2012. Elinkeino-, liikenne- ja ympäristökeskus. June. 24. DNV (2012). Shipping 2020. 25. Deloitte (2013). Global Manufacturing Competitiveness Index 2013. 26. World Economic Forum (2012). The Shifting Geography of Global Value Chains: Implications for Developing Countries and Trade Policy. 27. Asia Cruise Convention (2012). Catalogue. Seatrade Insider Review. September. 28. Asia Cruise Convention (2012) Participant List. Seatrade Insider Review. September. 29. KOSHIPA (2012). Shipbuilding Korea 2012. The Korea Shipbuilders´ Association. 34
  35. 35. 30. Mining Journal (2012). Finland- Green Mining Programme. Mining Journal, Special Publication. January. 31. CSIC (2012). The World-class Shipbuilder. China Shipbuilding Industry Corporation. 32. Pohjois-Lapin alueyhteistyön kuntayhtymä (2012). Jäämeren rautatie RovaniemiKirkkoniemi. February. Oulu, Finland. 33. Mikkola, Harri & Käpylä, Juha (2013). Artic Economic Potential, FIIA Briefing Paper 127. The Finnish Institute of International Affairs. April. 34. Lian & Leung (2012). China´s shipyards founder as building boom ends. Reuters. May 2. 35. The Economist (2013). A Continental Divide. The Economist. May 18. 36. Businessweek (2005). Stan Shih on Taiwan and China. Businessweek. May 16 37. Keith Wallis (2013). Shipping Lines Cut Clean Fuel Deal with Government. SouthChina Morning Post. January 1. 38. Behr, Aaltola & Brattberg (2013). Maritime Security in a Multipolar World: Towards a Eu Strategy for the Maritime Commons. FIIA Briefing Paper 130. The Finnish Institute of International Affairs. May 15. 39. Kallio (2013). China in the Year of the Snake. FIIA Comment 3/2013. The Finnish Institute of International Affairs. February. 40. WTO/IDE-JETRO. Trade Patterns and Global Value Chains in East Asia: From Trade in Goods to Trade in Tasks. World Trade Organization & IDE-JETRO. 41. Danish Ship Finance (2013). Shipping Market Review April 2013. 42. Ali-Yrkkö (2013). Kotimainen kannattaa. Talouselämä 7/2013. 43. Lunden (2013). Neste haistaa rahan rikkidirektiivissä. Talouselämä 9/2013. 44. Kankare (2013). Hei, hei Ranska! Talouselämä 9/2013. 45. Kankare (2013). Liuskeöljy vapauttaa. Talouselämä 13/2013. 46. Jacques (2012). When China rules the world. Penguin books. 35
  36. 36. APPENDIX 1: Finnish maritime and offshore companies in China and South Korea 1 ABB Oy 2 Alfa Laval Aalborg Oy 3 Auramarine 4 Cargotec 5 Deltamarin Oy 6 Elomatic 7 Esab Oy 8 Evac Oy 9 GS-Hydro Oy 10 Halton 11 Helkama Bica Oy 12 Kemira Oyj 13 KONE Oyj 14 Konecranes Oyj 15 Kvaerner Finland Oyj 16 Luvata Pori Oy 17 Maricap 18 Marioff Corporation Oy 19 Merima Oy 20 Mervento Oy 21 Metso Oyj 22 Metso Valstone 23 Moventas Oy 24 Napa Oy 25 Nestix 26 Oilon 27 Outokumpu Korea 28 Purso Tools 29 Rolls-Royce Oy Ab 30 Softex 31 Steerpop Oy 32 STX Cabins 33 STX Europe 34 Technip Offshore Finland Oy 35 Tevo Oy 36 Trafotek Oy 37 Vacon Oyj 38 Vaisala Oyj 39 Wärtsilä Oyj 36 China and South Korea South Korea China and South Korea South Korea China and South Korea China China China China and South Korea China and South Korea China China China China and South Korea China China South Korea China and South Korea China and South Korea China China South Korea China China China China South Korea South Korea China and South Korea South Korea China and South Korea South Korea China China South Korea China and South Korea China and South Korea China and South Korea China and South Korea
  37. 37. APPENDIX 2: Finnish shipbuilding club Shanghai (unofficial) 1 ABB Oy 2 Auramarine 3 Deltamarin Oy 4 Elomatic 5 Evac Oy 6 GS-Hydro Oy 7 Halton 8 Helkama Bica Oy 9 Kolmeks 10 KONE Oyj 11 Konecranes Oyj 12 Merima Oy 13 Napa Oy 14. Nestix 15 Oilon 16 Vacon Oyj 17 Wärtsilä Oyj 37
  38. 38. APPENDIX 3: Participants of the Future session of April 23, 2013 Last name Björkstam Ahonen Nylund Nummila Ruohoniemi Lainio Laurinen Bärlund Sakkara Hong Yuan Tchetchine Arho Havrén Virkki Makkonen Tan Torikka Jee Packalen Virtanen Lee Lehtonen Sampola Leidy Lehtinen Virtanen 38 First name Ulrika Ahti Ari Tero Jaakko Ulla Markus Mårten Isto Black John Konstantin Sari Vesa-Pekka Jari Liwei Mauri Seung-Hoon Ville Ari Yeon-Mi Mika Jussi-Pekka Kaisa Iiro Kari Organization Title Event name Finpro ry Specialist, Foresight Helsinki Moventas Gears Oy Helsinki Merima Ltd Export Manager Helsinki Finpro ry Head of Industry Helsinki Cargotec Finland Oy Director, Sourcing Development Turku Finpro Senior Consultant Turku Koneteknologiakeskus Turku KONE Marine Regional Director, APAC Shanghai Auramarine Ltd Director, Sales & Marketing Shanghai Konecranes China Port Director Shanghai Konecranes Industry Specialist, Shipyard Shanghai Evac Oy Vice President Shanghai Tekes Shanghai Wärtsilä Oyj Shanghai Finpro China Head of Trade Center China Shanghai Finpro Shanghai Consultant Shanghai Merima Shanghai Outokumpu Stainless ABKorea Manager Korea branch Seoul Wärstilä Korea Seoul Finpro South Korea Head of Trade Center Seoul Finpro South Korea Consultant Seoul GS-Hydro Seoul Vacon Seoul Embassy of Finland Seoul Aslemetals Webcasting STX Finland Oy Senior Advisor Webcasting
  39. 39. APPENDIX 4: Market segmentation for B2B 39
  40. 40. APPENDIX 5: Customer benefit, topics for sales pitch 40
  41. 41. APPENDIX 6: Other Finnish offshore and maritime companies Ablemans Oy Antti Teollisuus Oy Arctech Helsinki Shipyard Oy Arctia Shipping Oy Aslemetals Oy Ata-Gears Oy Dovre Group Oyj Dunlop Hiflex Oy Eaton EIE Maskin Oy Europlan Engineering Oy Fiskars Oyj Fortum Oyj FSP Finnish Steel Painting Oy Gasmet Technologies Oy Hollming Works Oy Jukova Oy Kemppi Oy KMJ Engineering Oy Meriaura Oy Mesekon Oy Metos Oy Miilukangas Ky Nurmi Hydraulics Oy OMP Konepaja Oy Outokumpu Oyj Ovako Imatra Oy Ab Paroc Oy Ab Pemamek Oy Plastilon Rauma Plan RKT Group RR Site Service Ruukki Metals Oy Ruukki Engineering Oy S.A. Svendsen Oy Sance Oy Satmatic Oy SBA Interior Oy Seaking Oy Shippax Oy Ltd Siemens Osakeyhtiö Stalatube Oy SteelDone Group Oy Ltd STX Finland Oy Sulmu Oy Suomen Hyötytuuli Oy 41
  42. 42. Suomen Teräsritilä STR Oy SWECO Industry Oy Taar Group Oy Tejara Oy Teknos Oy Telatek Oy Turun Korjaustelakka Oy Ursuk Oy UTU Oy Wellquip Oy VG-Shipping Oy Viafin Oy WinWinD Oy wpd Finland Oy YIT Teollisuus 42
  43. 43. APPENDIX 7: General Value Chain For the standard and common types of ships which Chinese shipyards have experiences with, the Shipyard would like to provide consulting services as well and act as the General Contractor to the Ship Owner. For special type of ship that Chinese shipyards have not many experiences, the design institute will be contacted firstly. As an independent consultant, Design Institute plays more important role and could influence both Ship Owner and Shipyard. Finnish expert says there are not any major differences compared to European value chain. Usually bulk carriers and tankers are bought from shipyard who may also select the naval engineering firm to make the design. When special vessels are concerned, naval architect has much more bigger role and it is usually selected first, as above figures. In Finland Design Institute means naval architecture and engineering firm. Links: How to do business with Toshiba, Hitachi and Mitsubishi 43
  44. 44. WTO and Jetro APPENDIX 8: Universities and vocational schools related 44
  45. 45. 45
  46. 46. APPENDIX 9: Useful Links CHINA Ministry of Industry and Information Technology of the people’s Republic of China Chinese Society of Naval Architects and Maritime Engineering (csname) China Association of National Shipbuilding Industry (CANSI) China State Shipbuilding Corporation China Shipbuilding Industry Corporation China Classification Society (CCS) China Ship Online SOUTH KOREA The Korea Shipbuilders’ Association Korea Maritime & Ocean Engineering Research Institute Korea Shipbuilding Industry Cooperative Korean Register of Shipping Korea Maritime Equipment Association The Society of Naval Architects of Korea Korea Maritime Institute Korea Shipowners’ Association Maritime OSKE related links 46
  47. 47. APPENDIX 10: Tables China has become more important trade partner for Japan and Korea – Share of foreign trade Source: Bank of Finland Current value chains of East Asia Source: Bank of Finland 47
  48. 48. APPENDIX 11: China jumps aboard a Russian Arctic-bound train 48
  49. 49. APPENDIX 12: Shipping lines cut clean fuel deal with government Ships calling at the city's port will go on using low sulphur diesel in exchange for government timeline to make such fuel use compulsory - Keith Wallis (South China Morning Post 1.1.2013) Shipping lines will continue to voluntarily use low sulphur diesel in Hong Kong, but only if the government sets a timetable for tough regulatory controls mandating the use of the cleaner fuel, experts said as the Fair Winds Charter, a voluntary two-year programme, ended yesterday. About 18 shipping and cruise lines had signed the charter under which they agreed to use low sulphur diesel to the "maximum extent possible" from January 2011. In return, they urged the implementation of a six-point action plan to help reduce marine pollution. Chief among the proposals was for the government "to take a lead and work with the Guangdong government to regulate the use of low sulphur fuel in the Pearl River delta region by December 31, 2012". While no legal controls outlawing heavily polluting marine diesel have yet been put in place, the Environmental Protection Department in September inaugurated an incentive scheme, giving a 50 per cent cut in port fees to ship owners who use cleaner fuel. But the rebate covers only 30 to 45 per cent of the cost of using the cleaner but more expensive low sulphur diesel. Public policy think tank Civic Exchange estimated that if all container lines calling at Hong Kong switched to the cleanest fuel available - with a sulphur content of 0.1 per cent or less - sulphur dioxide emissions from shipping would drop by about 80 per cent. But without laws laid out to mandate the use of such fuel, environmentally conscious shipping lines are concerned they are paying for the cleaner, more expensive diesel while those that continue burning cheaper, dirtier fuel have an economic advantage over them. Arthur Bowring, managing director of the Hong Kong Shipowners Association, said the government would like shipping lines to extend the Fair Winds Charter. But he added: "If shipping lines were to consider an extension, then it would have to be accompanied by commitments from the government to move towards regulation in order to introduce a level playing field. "Any extension would not be open-ended." Roberto Giannetta, secretary of the Hong Kong Liner Shipping Association, said representatives from shipping lines, Hong Kong and Shenzhen container terminals operators, think tank Civic Exchange and the city's environment officials had met in November to discuss the issue. 49
  50. 50. "The concept is that the Fair Winds Charter will be revised and upgraded to include a new set of targets to be achieved within 2013," he said yesterday. Giannetta said the targets would include draft legislation and signing of the charter by the Environmental Protection Department, adding that a revised draft of the 2013 charter had already been circulated to members of the liner shipping association which represents most container shipping lines operating in Hong Kong. "Several of them are coming in with confirmation of support and participation," he said. 50
  51. 51. FINPRO PORKKALANKATU 1, PO BOX 358, 00181 HELSINKI FINLAND Tel. +358 204 6951 Fax. +358 204 695 200 TEKES KYLLIKINPORTTI 2, PO BOX 69, 00101 HELSINKI FINLAND Tel. +358 29 50 55000. 51