Despite lingering concerns over high labour costs, shipowners are increasingly turning to quality European shipbuilding capacity to meet demand for new tonnage.
As the world's shipbuilders welcome the dramatic turnaround in their industry's fortunes, some question whether this is a truly long-term global recovery or merely a temporary phenomenon resulting from extraordinary world trading conditions. For many European shipbuilders, the answer to this question holds the very key to their futures - as one industry insider commented recently: "If European yards can't book contracts in this market, they never will!"
Most of the world's major shipyards are full for at least the next three years and owners wishing to procure tonnage within that period are seeking alternatives in Europe. Yet, with newbuilding prices rising rapidly, some believe European builders still can't compete on costs. Indeed, a quick look at today's orderbook reveals that shipbuilders in western Europe remain relatively marginal players when it comes to mainstream ship construction.
The French are building a couple of gas carriers and a handful of trawlers; the Germans have booked a few more deals, but mostly in former East Germany where labour is still substantially cheaper, and the Italians, led by star performer Fincantieri, are building a mixture of cruise ships, ferries, ro ros, chemical tankers and research vessels (see also sidebar). The Dutch are currently specialising in various general cargo ship designs and have a few more ships on their books whilst the handful of remaining facilities in the UK are knocking up a couple of logistics vessels, one FPSO and the odd barge or two.
Searching for slots
However, things may be changing. As the executive vice president of Fincantieri's merchant ship business unit, Giovanni Romano, highlighted during a recent interview with Classification News, the recovery of the European shipbuilding industry is evident. This, he says, is due to shipowners' searching for slots as Far East yards are unable to ensure deliveries earlier than 2007-2008.
Another advocate of Europe's shipbuilding future is Marjo Tikkakoski, marketing and communications manager for Aker Finnyards, who says regional players are "on the right track when it calls upon European shipyards to expand their leading market positions for top-quality special-purpose shipbuilding and at the same time also retain an effective presence in standard shipbuilding."
Others are encouraged by developments in other parts of Europe. As highlighted in a special Seatrade report in October, some easterly European yards with comparatively cheap overheads and labour costs are clearly participating in the boom. Poland, for example, is building some 60 ocean-going vessels, including container ships, car carriers, bulkers and LPG carriers. Romania also has a significant book comprising about 20 ships of 650,000 dwt and Ukrainian yards are busy building the only reefers currently on order, for Laskaridis, together with product tankers, container ships and ore carriers. Other yards to watch in the region include facilities in Turkey where yards are currently working on some 50 ships about 420,000 dwt in total.
Busy times
Croatia's Brodsplit, 3 Maj, Trogir and Uljanik are also experiencing busy times. The four yards, all of which are state controlled, have no slots available until the end of 2007. In 2003 the orderbook stood at 16 vessels but, by mid-year 2004, 36 vessels, totalling some 1.35m gt were on order from Croatian yards. The boom in the region's shipbuilding productivity has provided DNV with a steady workload, accounting for about 70 per cent share of all newbuildings ordered from Croatian shipyards.
Yet challenges remain. Analysts point out that European shipyards definitely have a major marketing job on their hands. Whilst many European shipyards may be able to compete with other global builders on sophisticated vessels in a rising market where most other facilities are already full, some analysts question whether or not they compete on productivity and price in the longer run. However, if the earliest delivery available from a South Korean or Japanese yard is late 2007 or first quarter 2008, an almost empty European yard must be capable of competing, at least in the short term.
To generate new interest in the region's beleaguered shipbuilders and an effort to pull together European efforts to drive new deals in the sector, European shipyards have launched several cooperative initiatives. Even the shipyard associations are pooling their resources - earlier his year, the Association of European Shipbuilders and Repairers and the Committee of EU Shipbuilders' Associations got together to form CESA. At the same time, the European 'LeaderSHIP 2015' initiative continues striving to dig out new orders from owners who simply can't get the ships they want from their usual suppliers.
The European Commission, responding to the demands of regional builders seeking to challenge South Korean dominance, proposed a dispute settlement procedure to the World Trade * Organisation almost two years ago. But the WTO's regulatory wheels turn slowly and the 'temporary defence mechanism' put in place to support both European shipbuilders and equipment suppliers is now set to remain in place until March 2005. This arrangement, approved by the EU in an effort to answer the perceived unfair Far East competition, has been supplemented by raised incentives for research and development aid - up from 10 per cent to 20 per cent. This 'InterSHIP' programme gives European builders a little more breathing space to build capacity to meet demand.
Bulging orders
The new policy appears already to have borne fruit. Facing bulging Far Eastern orderbooks, some owners are clearly attracted by prompt slots in European yards, which enable them to make the most of today's booming freight markets. In the first quarter of this year, European yards booked 1.5m compensated gross tons (cgt) of new business - about 17 per cent of the world total and up from just 7 per cent one year earlier. The primary aim is to win contracts for sophisticated ships where European know-how can aid product innovation and generate closer ties between shipyards and the maritime transport supply system.
While building a niche business is important, Europe's need to compete on a global, long term basis remains a significant challenge. Highly sophisticated vessels were once the preserve of long-established European builders, whilst Asian yards, the Japanese in particular, earned a reputation for turning out competitively priced standard ships. However, today, even the relative newcomer China is building sophisticated vessel types.
The Chinese may be heading the global shipbuilding charge but this should not detract from South Korean builders' current performance. Hyundai Heavy, the world's largest shipbuilder, for example, announced back in June that it had already beaten its 2004 ship contracting target, some five months ahead of schedule, with more contracts pending. The group booked contracts worth more than USD 5.4 bn during the first half of the year, already ahead of its 2004 target by almost USD 1 bn.
Yet many are encouraged by recent developments in Europe. Indeed, Giovanni Romano notes that Europe has significant competitive advantages, for example in the construction of cruiseships, passenger ferries or special-purpose ships and benefit from the high value end of these segments. "The European shipbuilding industry has gradually withdrawn from the construction of vessels of a lower technological content. Instead, European builders are increasingly focusing on complex products with high added value, where price is not the sole competitive factor. This gives Europe as a shipbuilding location, a good basis for holding its own against the global competition."
Date: 07 January 2005