The global economic crisis has brought steepest decline in the shipbuilding industry across the world. The shipbuilding industry is facing tremendous head winds with no significant relief in sight. New orders are sparse even with falling prices. Many existing orders are in peril due to lack of financing and tight credit facilities. The shipbuilder’s dilemma can be steered through “Mergers”, “Consolidation”, “Diversification” and “Exports”. These are national issues and will need respective governments active support and directions.

The examples of nations who have successfully achieved and adopted the above measures have been illustrated in this paper. In addition, the lean time available to the shipbuilding industry can be utilized with focus on offshore sector, emerging technologies, military ships and rapid delivery of naval auxiliaries like OPVs to meet the new threats of terrorism, piracy etc at sea.

The above ‘way ahead’ through mergers and acquisitions across state lines (country boundaries) have not been attempted and need to be explored in the interest of healthy shipbuilding industry in the long run.

Shipbuilding Boom (2000 to mid 2008)

Shipping and shipbuilding are vital to the economic growth. There was consistent boom in the shipbuilding since the year 2000. The main reason for this was the rise in the volume of international trade due to healthy long range economic and energy demands. In addition, the replacement of single hull oil tankers had also contributed to growth in shipbuilding. The above trend in the growing demands for new shipbuilding had been known and predicted. In order to take advantage of this boom in the shipbuilding in the world, countries like Japan, S. Korea and China took timely steps to enhance their shipbuilding capacity and opened new shipyards. These countries have been reaping the benefits of their timely actions. During the year 2007, orders for 155m GRT ships were placed to keep pace with the growing economy.

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The total shipbuilding on order was about 300m GRT as in Dec. 2008. To deliver this huge order book on schedule, the shipbuilding capacity would have needed to double last year’s output. However the capacity shortfall problem is self correcting with a down turn, as contracts are cancelled and new orders significantly decrease and some contracts get renegotiated for later deliveries.

Cyclic Nature of Shipbuilding Industry

Till July, 2008, everything was fine and the shipping and shipbuilding industries were growing steadily. The boom lasted for 7 to 8 years. The shipbuilding capacity had expanded at an unprecedented rate, both at established and new Greenfield Shipyards. A considerable percentage of the world order book is now with new and inexperienced shipyards. This will result in growing percentage of slippage of scheduled deliveries.

The European region shipyards have completed a lengthy process of consolidations and mergers. There exists one major shipbuilder within each of the big countries.

The current financial crisis since 2008 has brought the steepest decline in the shipping industry. The economic slow down has reduced the shipping demands, hurting some market sectors more than others. There would be significant demand destruction over the next few years. Many contracts are in peril due to lack of financing. The Greenfield ship yards and the expansion plans are at risk. The world shipbuilding order book will steadily decline over the next few years as the deliveries outpace the new orders.

The new shipbuilding cancellations and scrapping levels will dramatically increase. The steel prices will sharply drop. The new ship prices will continue to decline with some yards going out of business. Owners are pushing delays until market improves. Lack of anticipated capacity will continue due to dropped expansion plans. The shipyards are deliberately slowing production to preserve work force.

Steering Through Shipbuilders Dilemma

Immense pressure is being placed upon the shipbuilding sector as the global economic crisis continues to loom large over the entire world. Government procurement contracts may sustain the selected industry in the short term, but these will be completed within next few years. In anticipation of the axe falling on the ship acquisition programmes, the shipbuilders are striving to identify and develop an industrial strategy that will ensure further prosperity.

Survival through Mergers — European Example

The European region shipyards have completed a lengthy process of consolidations and mergers. There exists one major shipbuilder within each of the big countries. Six large companies dominate the European naval shipbuilding. These include a mix of state owned and privately owned yards. In UK, BVT surface fleet was created in June 2008 as a privately owned joint venture (JV) between BAE systems surface fleet Solutions and VT Group’s shipbuilding interests. The JV took place at the behest of the UK government to create a national shipbuilder.

India does not have a Shipbuilding Ministry in the Central Government to steer, support and direct shipbuilding in the national interest. Indian shipbuilding industry is like a ship sailing without a rudder...

In France, State owned Shipbuilder DCNS was created in April 2007 with the sale of Thales Naval Business to DCN. In Germany, Thyssen Krupp Marine Systems (TKMS) became the national shipyard in 2005 with the merger of three main shipyards ie Blohm+Voss in Hamburg, Nordseeverke in Emden and HDW in Kiel. In Spain the military yards of shipbuilder IZAR were transferred to government owned company Navantia in 2004 which became the national shipbuilder. In Italy, the Fincantieri builds both commercial and military vessels and has grown through gradual mergers of government owned yards since its creation in 1959.

Dutch owned Damen Shipyard group is a global commercial and naval shipbuilder with yards in 17 countries worldwide that comprise activities such as maintenance, repair as well as new construction. In Netherlands, after nearly two decades of government ownership, the government privatized Royal Shelde by selling it to the Dutch owned Damen Shipyards group in 2000.

Survival through Consolidation

Russian shipbuilding is one of the largest national industries. This industry has been going through the process of consolidation. On March 22, 2007, President Vladimir Putin signed the decree on the creation of the state run “UNITED SHIPBUILDING CORPORATION” (USC) joint stock company. The United Shipbuilding Corporation will have sub-holdings partners comprising Nevoskoye Design Bureau JSC, the Western Shipbuilding Center JSC, the Northern Shipbuilding center JSC and the Far Eastern Shipbuilding and Ship repair Center JSC. The Severodvinsk-based Zvyozdochka Machinebuilding Enterprise FSUE has been reorganized in Zvyozdochka Shiprepair Center JSC.

Several companies have joined the new center. Five dozens of design, scientific, research and development organisations and institutions have been grouped under the umbrella of the holdings such as Granit-Electron Concern JSC, Morinformsystema-Agat Concern JSC, Avrora Scientific and Production association Concern JSC, and Electropribor-Central Scientific and Research Institute Concern JSC. The State run Krylov Central Scientific and Research Institute has been reorganised in the Krylov State Scientific Center FSUE. All the Russian State run central design bureaus are reorganised in joint stock companies under the control of the United Shipbuilding Corporation (USC). These design bureaus include Severnoye Design Bureau, ALMAZ Central Marine Design Bureau, Zelenodolsk Design Bureau, Rubin Central Design Bureau of Marine Engineering, Malakhit Saint-Ptersburg Marine Design Bureau and Onega Scientific and Research Design Bureau.

The world famous Central Research Institute for Shipbuilding Technologies FSUE has been reorganised in the Center for Shipbuilding and Shiprepair Technologies JSC. The consolidation process is not yet complete in Russia. For example the future is not clear for the concern of medium and small tonnage shipbuilding JSC (CMSS), the Marine oil and gas projects JSC and Fast Fleet Financial and production group.

Survival through Exports

BVT, the national shipbuilder of UK has plans to stabilize its internal UK business using its guaranteed work load to derive value for money. This will allow BVT to expand its capabilities into a through life support business, which will, in turn, enable more success in the export markets. BVT has already secured export orders for building OPVs for Thailand, Oman and Trinidad and Tobago. BVT has also obtained export orders for building Super Vita fast attack craft for Greece. BVT has recently signed a Joint venture (JV) with Abu Dhabi Shipbuilding for service and support network in the Middle East region. This is just one of the international partnerships that BVT is pursuing.

DCNS, the national shipbuilder of France has large order book to sustain its operations in the short term. It is also aggressively expanding its operations beyond European shores to reduce its reliance on domestic orders. Presently, It has export orders for SSKs from India, Malaysia, Chile and Brazil. DCNS has recently received export order for FREMM frigate for Morocco. On 13 may 2009, DCNS signed a MOU with Singaporean Shipbuilders ST Marine for the through life support of six new Formidable-class frigates of the Republic of Singapore Navy. It has also set up a subsidiary office in India for targeting second line of SSK construction.

Fincantieri, the national shipbuilder of Italy, has also been exposed to the downturn in commercial shipbuilding. The yard is engaged in domestic orders from the Italian navy for ten numbers FREMM frigates and Type 212 SSKs. Fincantieri has bagged export orders for two anti submarine Corvettes for the United Arab Emirates, two Fleet Tankers for the Indian Navy, four patrol boats for the Iraqi Navy. Fincantieri has also been engaged in the propulsion system integration for the Air Defence Ship for the India.