1. Global shipbuilding: An
overview
The global shipbuilding industry has been on an upswing over the
past few years. In the period between 2000 and 2005, the world
shipbuilding output has grown at a compounded annual rate of 8.3%
based on gross tonnage (GT), as opposed to a growth of 4.8% achieved
in the past 20 years (1985 to 2005). Strong demand and capacity
constraints has led to the world's shipping order book to sales ratio
increase to 3.5 times in 2005, higher than the historical average of 2.1
(between 1982-02).
Shipyards remain fully booked in the medium-term with the delivery period, for the first time since the seventies, extending
beyond three years. Since it is the waiting period, which new building prices closely follow as compared to freight rates,
the strong new building prices are expected to be maintained over the medium-term. Also, the ships that have been
currently booked at higher prices will have full impact on the shipbuilder's profitability in the next two to three years.
The global shipbuilding industry is primarily dominated by conventional vessels like tankers, bulk-carriers and container
vessels. As can be seen from the chart below, conventional vessels accounted for 69% of the world shipping order book
at the end of 2005, followed by LNG carriers at 9%. In addition, there exist specialised categories like cruise ships that fall
under 'Passenger Vessels' category and Offshore Supply Vessels (OSVs) that come under 'Other Non-cargo Vessels'
category.
Demand drivers: Being a global industry, the fortunes of the
shipbuilding industry are closely tied to the growth in world trade. The
demand for ships can be classified into incremental demand and
replacement demand. In case of incremental demand, growth in world
trade increases the demand for vessels, which in turn leads to higher
freight rates. The resultant higher freight rates trigger the demand for
new vessels from the shipping companies. In case of replacement demand, the demand for vessels is dependent upon
2. the age profile of the existing fleet as well as steel prices. Every ship has a useful life (25 to 30 years) after which it
becomes uneconomical to operate them. Replacement demand is triggered when ships approach the end of their useful
life. Higher steel prices also decide the extent of replacement demand as they lead to an increase in value of ships to be
scrapped.
Major players in the shipbuilding countries: Global market
environment in the shipping industry has undergone fundamental
changes over the last two decades. For nearly three decades in the post
World War II era, shipbuilding industry was dominated by Europe and
the US. Shipbuilding being a labour intensive industry, the cost of labour
plays an important determinant in a country's competitiveness position
vis-a-vis others. With rising labour cost, shipbuilding activities have
slowly moved away from 'high wage' Europe and US to low-wage Asia. Over the past 25 years, we have observed the
decline of shipbuilding capacity in Europe coinciding with the growth of Japanese shipbuilding. As can be seen in the
chart, the share of European Union has declined from 28% in 1983 to 7% in 2005. With the rising labour cost in the late
1980s, Japan was forced to scale down its shipbuilding activities and Korea emerged aggressively. In the past few years,
China is taking away an increasingly larger market share of the new building contracts.
The shipbuilding industry is currently dominated by the Japanese and Korean shipyards. In 2005, they together accounted
for 73% of the total world output (in number terms), followed by China at 13.5% and European Union (EU) at 7%. The
largest shipbuilding companies in terms of capacity are Hyundai Heavy Industries, Daewoo Shipbuilding and Marine
Engineering and Samsung Heavy Industries (all Korean).
The conventional large vessel segment like tankers, bulk carriers and container vessels is dominated by Korea, Japan
and China. China's ambitions to become the world's largest shipbuilder for conventional vessels has resulted in Korea
taking a back-seat in this segment and instead focus on new ship development areas like super-large LNG carriers. Japan
has been struggling to maintain its market share due to dwindling workforce and higher labour cost. It is currently
investing in technology to construct conventional vessels in a short period and thereby compete with China in this
segment. Realising its inability to compete with Asian countries in the conventional segment, the EU shipyards have been
focusing on 'Passenger Vessels' and 'Offshore Vessels' segment.
Indian ship building industry to reach Rs 9,200
crore by 2015
The Indian shipbuilding and ship repair industry is likely to reach Rs 9,200 crore from the current level of just
over Rs 7,310 crore, according to a study done by the industry body ASSOCHAM.
The study 'Shipbuilding Industry in India: An overview', by The Associated Chambers of Commerce and
Industry of India (ASSOCHAM), said that India accounts for just about one per cent of the global shipbuilding
industry worth about Rs 7.3 lakh crore but is growing at a compounded annual growth rate (CAGR) of about 8
per cent.
Globally, this industry is growing at a CAGR of about 24 per cent and is likely to reach Rs 14 lakh crore by
2015 owing to rising global sea borne trade, according to the study.
3. "Lower costs of labour, availability of skilled workforce together with robust demand in the domestic market
and a growing steel industry are certain factors that build up a strong case for shipbuilding sector in India," said
Mr D.S. Rawat, secretary general of ASSOCHAM.
"For a well balanced and comprehensively developed domestic shipbuilding and ship repair industry, the
government should provide fiscal incentives to develop strong research and development facilities, designing
capabilities and set up an auxiliary base to encourage the growth of the sector," said Mr Rawat.
The overall cargo traffic at major ports in India is about 600 million tonnes and is likely to reach 1,230 million
tonnes by 2015 and 3,000 million tones by 2020 growing at a compounded annual growth rate (CAGR) of about
20 per cent, said ASSOCHAM study.
"For this India needs to furbish up its ports and the whole shipping infrastructure to enhance the handling
capacity and facilitate operation of larger shipments to increase its share in the global maritime business," said
Mr Rawat.
"The government should rope in maritime states to identify and make land available, thereby seeking their
contribution for setting up a new port or a shipyard in each of these states."
"This also denotes huge scope for private sector and foreign direct investment (FDI) in the shipping industry
and the maritime states can develop a composite project on the public-private partnership model," he said.
China, South Korea and Japan are leading shipbuilding nations and cater to over 80 per cent of the global
shipbuilding industry. China alone accounts for over 35 per cent of this global industry. India and Vietnam are
upcoming centres for global shipbuilding.
High input costs and rising costs of raw material, freight together with miscellaneous duties and taxes being
imposed amounts to a huge price differential of about 50 per cent in building a ship in India and other countries,
said ASSOCHAM.
Besides, though the costs of labour in India is low compared to that in other nations but shipbuilding being a
labour-intensive industry, fulfilling the requirement of skilled workforce is another significant problem being
faced by the shipbuilding companies.
