The Shipbuilding Industry 2009

Since its evolution in the European region, the shipbuilding industry has now come of age. True to its nature, the industry has been cyclic with many crests & troughs since the 1960s. Five major cyclic changes have witnessed the dominance within the industry shifting from the European markets to the low-cost Asian destinations such as S. Korea, Japan and China. The period spanning 2000-2007 can be described as a ‘golden era’ for the global shipbuilders, with the global order book position surging from 78.3 million GT in 2000 to 332.9 million GT in 2007 at a CAGR of 22.9%. The investments in this sector too have been growing with the surging order books.

However a few questions still remain unanswered like: Whether the global deliveries have kept pace with the global order books? Are all the shipbuilding nations flooded with enough new orders? Which phase/cycle is the industry currently witnessing? How long will this cycle last? This report on ‘The Shipbuilding Industry’ seeks to unwind the complexities behind these queries using reliable sources of primary as well as secondary data and arrives at conclusions through the use of various analytical models. The report tries to predict the future demand-supply scenario, laying emphasis on parameters such order books, new orders and deliveries of the various ship types. Besides the same, the shipbuilding scenario in the major shipbuilding nations such as S. Korea, China, Japan etc has also been dealt in detail.

The additional section on the Ship Repair Industry explores the opportunities underlying the Global and Indian Ship Repair Industry. The section gives an understanding of this industry by unearthing answers to queries such as: What is the market size of the industry? Which countries are leading the race? Are the shipbuilding majors leading the ship repair segment too? What is India’s stand on this industry? What are the governmental plans in relation to this sector (Xth & XIIth Plans)? How have they fared? etc.

With an extensive data coverage spanning from the year 2000 till July, 2008 and outlook on the industry up to the year 2010 , the report is a piece of delight not only for the shipbuilding companies looking out for action in the global shipbuilding arena but also as a guide to financial institutions/banks, investment agencies, regulators & policy framers, research & academic institutions and other national & international agencies. Additionally, the monthly updates (for the period January- 2009 to December- 2009) accompanying the subscription of the said report would form a potent tool for the subscribers to keep abreast of the happenings in the industry.

Countries Covered:
-South Korea
-China
-Japan
-Europe
-Vietnam
-India

Products Mentioned:
-Shipbuilding
-Ship repair

Chapter Topic
Executive Summary
Section- I The Shipbuilding Industry

Chapter 1 Industry Evolution

Chapter 2 Industry Characteristics
2.1 Global Presence
2.2 Industry Structure
2.3 Cyclic Industry
2.4 Sell first, Construct later
2.5 Standardized Pricing
2.6 Huge Investment outlay
2.7 Working Capital Intensive
2.8 Labour Intensive
2.9 Constant technological enhancements
2.10 Long Gestation Period
2.11 Subsidized Industry
2.12 Regulatory Structure

Chapter 3 Demand Drivers
3.1 Incremental Demand Drivers
3.1.1 Growth in sea borne trade
3.1.2 Increasing exploration & production activities
3.1.3 Freight Rates
3.1.4 Governmental thrust
3.1.5 Specialization in Ship making
3.2 Replacement Demand Driver
3.2.1 Age profile of fleet 34
3.2.2 Scrapping of Tonnage
3.2.3 Regulations- Phasing out of Single – hull tankers

Chapter 4 The Making of Shipyards
4.1 Shipyards Construction-Area of Focus
4.2 Development of Shipyards – A step-by-step approach
4.3 Flow chart for shipyard construction - From conception to implementation
4.4 Shipyard Construction – Cost Breakdown

Chapter 5 Shipbuilding – Production to pricing
5.1 The shipbuilding Process
5.2 Types of Ship
5.3 Elements of Price Determination
5.3.1 Availability of Capacity
5.3.2 Shipyard’s cost of Production
5.3.3 National Policy
5.3.4 Currency Fluctuation
5.3.5 Competitive forces

Chapter 6 Market Trends
6.1 Wet Bulk Carriers
6.1.1 Orderbook Position
6.1.2 New orders & Deliveries
6.1.3 Investments & Price trends
6.2 Dry Bulk Carriers
6.2.1 Orderbook Position
6.2.2 New orders & Deliveries
6.2.3 Investments & Price Trends
6.3 Containerships
6.3.1 Orderbook Position
6.3.2 New orders & Deliveries
6.3.3 Investments & Price Trends
6.4 Specialized Vessels
6.4.1 LPG, LNG & Chemical carrier
6.4.1.1 Orderbook Position
6.4.1.2 New orders & Deliveries
6.4.1.3 Investments & Price Trends
6.4.2 Offshore vessels
6.4.2.1 Orderbook Position
6.4.2.2 New orders & Deliveries
6.4.2.3 Investments

Chapter 7 The Global Expanse
7.1 South Korea
7.1.1 Orderbook Position
7.1.2 New orders & Deliveries
7.1.3 Major Players at a glance
7.2 China
7.2.1 Orderbook Position
7.2.2 New orders & Deliveries
7.3 Japan
7.3.1 Orderbook Position
7.3.2 New orders & Deliveries
7.4 Europe
7.4.1 Orderbook Position
7.4.2 New orders & Deliveries
7.5 Vietnam – The Dark Horse
7.6 The Indian Scenario 76

Chapter 8 Cost Analysis – Indian Shipbuilders
8.1 Raw Material Expenses
8.2 Labour Expenses
8.3 Financing Expenses
8.4 Profit Margins

Chapter 9 Analytical Models & Industry Outlook
9.1 Analytical Models
9.1.1 SWOT Analysis
9.1.2 Porter’s Five Force Model
9.2 Outlook
9.2.1 Slow down in Economic Growth
9.2.2 New ordering to Slow Down
9.2.3 Supply side over - capacities Chapter Topic
9.2.4 Cancellation of new orders
9.2.5 Changing competitive
scenario

SECTION- II THE SHIP REPAIR INDUSTRY

Chapter 10 Ship Repair
I The global Ship repair Industry
II The Indian Ship repair Industry
II A The Xth Plan (2002 - 2007)
II B The XIth Plan Targets (2007 -2012)
III Ship repair – Costs & other Considerations

SECTION- III REVIEW OF INDIAN PLAYERS

Chapter 11 Company Profile
I. ABG Shipyard
II. Bharati Shipyard
III. Cochin Shipyard
IV. Hindustan Shipyard
V New entrants in Indian Shipbuilding

Annexure 1 The Indian Shipbuilding Subsidysaga
Annexure 2 List of Public & Private sector shipyards
Annexure 3 Profile of various ship types
Annexure 4 Time-table for phasing out of single –hull tankers
Annexure 5 Dockyard facilities of Top 3 Korean shipbuilders
Annexure 6 Dockyard facilities of Top 3 Japanese shipbuilders
Shipbuilding Terminologies &Abbreviations

List of Figures

Fig. No: Index
Fig. 1.1 Evolution of Global shipbuilding Industry
Fig. 2.1 Global Order Book 2008* - CGT in %
Fig. 2.2 Asian Order Book 2008* - CGT in %
Fig. 2.3 Break-down of World fleet orderbook by ownership 2008* - US$ billion in %
Fig. 2.4 Break-down of Asian fleet orderbook by ownership 2008* - US$ billion in %
Fig. 2.5 Break-down of World fleet ownership 2007* - dwt in %
Fig. 2.6 Break-down of Asian fleet ownership 2007* - dwt in %
Fig. 2.7 Shipbuilding investment & order book y-o-y % change
Fig. 2.8 Investments by new entrants in Indian shipbuilding
Fig. 2.9 Comparative study of labour cost as a % of total production cost
Fig. 2.10 Order Book position of Indian shipbuilders as on January- 2008
Fig. 3.1 Seaborne trade of various commodities
Fig. 3.2 Global production & consumption of oil
Fig. 3.3 Movement of spot crude prices
Fig. 3.4 Movement of Baltic Dry Index
Fig. 3.5 Average* Age Profile of Ships of Indian Shipping companies as on October 1, 2007
Fig. 3.6 Age Profile of Indian Offshore Vessels (as on October 1, 2007)
Fig. 3.7 World Tonnage Scrapped
Fig. 4.1 Shipyard construction – cost- structure break down
Fig. 5.1 A modular representation of the Shipbuilding process
Fig. 5.2 Various types of ships
Fig. 5.3 Indexation of Exchange rates w.r.t. USD– (base year 2000)
Fig. 6.1 World - Orderbook, New orders & Deliveries - May, 2008
Fig. 6.2 Global Order book composition in 2000 – % GT
Fig. 6.3 Global Order book composition in 2007 – % GT
Fig. 6.4 Wet Bulk vessel segment - Order book position
Fig. 6.5 New Order & Deliveries
Fig. 6.6 Investments & Price Trends
Fig. 6.7 Dry Bulk vessel segment - Order book position
Fig. 6.8 New Order & Deliveries
Fig. 6.9 Investments & Price Trends
Fig. 6.10 Containerships segment - Order book position
Fig. 6.11 New Order & Deliveries
Fig. 6.12 Investments & Price Trends
Fig. 6.13 LPG carrier, LNG Carrier & Chemical Tanker – Order book position
Fig. 6.14 New Order & Deliveries
Fig. 6.15 Investments & Price Trends
Fig. 6.16 OSVs – Order book position
Fig. 6.17 New Order & Deliveries
Fig. 6.18 Investments
Fig. 7.1 S. Korea - Orderbook, New orders & Deliveries
Fig. 7.2 Korean Order books as a % of Asian & Global Order books
Fig.7.3 Order book categorization by vessel type - % GT
Fig. 7.4 Deliverables for Year 2008–11+ - in % CGT
Fig. 7.5 China- Orderbook, New orders & Deliveries
Fig. 7.6 Chinese Order book as a % of Asian & Global Order books
Fig. 7.7 Order book categorization by vessel type - % GT
Fig. 7.8 Deliverables for Year 2008–11+ in % CGT
Fig. 7.9 Japan - Orderbook, New orders & Deliveries
Fig. 7.10 Japanese Order book as a % of Asian & Global Order books Fig. No: Index Fig. No: Index
Fig. 7.11 Order book categorization by vessel type - % GT
Fig. 7.12 Deliverables for Year 2008–11+ in % CGT
Fig. 7.13 Europe - Orderbook, New orders & Deliveries
Fig. 7.14 European Order book as a % of Asian & Global Order books
Fig. 7.15 Order book categorization by vessel type - % GT
Fig. 7.16 Deliverables for Year 2008–11+ in % CGT
Fig. 7.17 Vietnam - Order book categorization by vessel type - % dwt
Fig. 7.18 Vietnam -Deliverables for the Year 2008– 11+ -% dwt
Fig. 7.19 India- Order books & New orders
Fig. 7.20 India- Exports
Fig. 7.21 Order book categorization by vessel type - % dwt
Fig. 7.22 Deliverables for the Year 2008–11+ -% dwt
Fig. 8.1 Average Price trend of steel production in India
Fig. 8.2 Indian Shipbuilder’s Comparative cost

Analysis
A) ABG Shipyard
B) Bharati Shipyard
C) Cochin Shipyard
D) Hindustan Shipyard
Fig. 9.1 World’s estimate for GDP growth & Trade growth - in %
Fig. 9.2 All vessels - Deliverables from 2008- 2011+ - % GT
Fig. 9.3 Wet Bulk – Deliverables from 2008- 2011+ - % GT
Fig. 9.4 Dry Bulk – Deliverables from 2008- 2011+ - % GT
Fig. 9.5 Containerships – Deliverables from 2008-2011

Since its evolution in the European region, the shipbuilding industry has now come of age. True to its nature, the industry has been cyclic with many crests & troughs since the 1960s. The five major cyclic changes witnessed the dominance within the industry shifting from the European markets to the low-cost Asian destinations such as South Korea, Japan and China. The industry is primarily characterised by its global presence with almost all the regions of the world such as Europe, Asia, the Americas etc. engaged in shipbuilding activities. High labour intensity and huge working-capital requirement due to high gestation period constitute the other prominent features of the industry. The grants/subsidies and other incentives from governments of shipbuilding nations have catalysed the growth of the industry.

The demand for the vessels can be primarily attributed to two factors viz. Incremental demand & Replacement demand. The factors such as growth in sea-borne trade, the increasing Exploration & Production (E&P) activities, rising freight rates, new-build vessel rates etc. contribute to the incremental new-build demand. The replacement demand is triggered by ageing world fleet and regulations such as phasing out single-hull tankers by 2010 etc. The ships can primarily be classified into four categories: Wet Bulk carriers, Dry Bulk carriers, Containerships and Specialised vessels. Each of these segments can be broken down into further sub-segments. The capacity of the shipyard determines the type of ship which can be constructed. Larger the shipyard, greater is the capability to build vessels such as Tankers, Bulkers etc. Raw material and labour cost constitute the major costs of ship building. In terms of capacity, the global shipbuilders are presently facing a crunch with their order books filled up till 2012.

The period spanning 2000-2007 has been a ‘golden era’ for the shipbuilders with the global order book position surging from 78.3 million Gross Tonnage (GT) in 2000 to 332.9 million GT in 2007 at a Compounded Annual Growth Rate (CAGR) of 22.9%. The same has efficiently been backed by new investments in shipbuilding capacities which rose from US$33.5 billion in 2000 to US$194.7 billion in 2007 at a CAGR of 28.5%. Globally, South Korea, China and Japan are the three largest shipbuilding nations in the given order and they maintained their leadership positions by together accounting for 83.4% of the global order books as on July 31, 2008.

The industry’s prosperity in the Asian countries of South Korea, China and Japan can be attributed to the huge governmental support in terms of subsidy grants, development of ancillary units and other favourable governmental regulations. The South Korean shipbuilding industry being granted a “strategic industry” status has witnessed a massive surge in order books from 14.8 million Compensated Gross Tonnage (CGT) in 2000, to 65 million CGT in 2007, at a CAGR of 23.5%. The growth in Korean order books surpasses the global order books. The Chinese shipyards operating under the two governmental organisations i.e. China Shipbuilding Industry Corporation (CSIC) and China State Shipbuilding Corporation (CSSC) have performed remarkably well since the last decade. Increased domestic vessel demands, cheap availability of labour, techonological prowess etc. have been the stimulating factors behind the growing Chinese order books which have grown from 3.9 million CGT in 2000 to 53.9 million CGT in 2007, at a CAGR of 45.5%.

Japan, once dominant in the global shipbuilding arena during 1960s gradually seems to be losing its sheen. The lack of investments and the rising labour costs compared to new shipbuilding destinations such as Vietnam etc. are the factors that have accelerated the Japanese downfall. Despite the problems encountered, the Japanese still rank third in terms of global order books with the corresponding figures growing from 11.6 million CGT in 2000 to 30.5 million CGT in 2007, at a CAGR of 14.8%. However, with the toughening competition in the industry, the Japanese are yet to witness the worse if immediate remedial measures are not undertaken.

The Indian shipbuilding industry with a market share of nearly 1.24% of the global order books stands at a distant sixth position. The long coastline, cheap labour, the growing fleet requirements worldwide together with packed order books of shipbuilders in South Korea, China and Japan have been the major factors ensuring the growth of Indian order books which surged from 0.84 million GT in 2006 to 2.7 million GT in 2007. A decade ago, the Indian shipbuilding was confined to building small Inland vessels, Barges etc. Since then the Indians have carved a niche in the Offshore Supply Vessel (OSV) segment. Particularly with the expansion in terms of capacity and technology, the Indian private companies are accepting orders even for bigger vessels such as Tankers, Bulkers etc.

Notably, shipbuilding in Vietnam has taken a giant leap. Currently the fifth-largest shipbuilder globally, the country possesses all the makings of a future shipbuilding giant. Particularly the interest evinced by the European shipbuilders in the country has provided a further boost to the industry.

The ship repair industry can be characterised as an ‘evergreen industry’ with the business growing corresponding to the growing world fleet size. With Singapore as the leader, other countries such as Dubai, Bahrain, Colombo etc. have emerged as major global ship repair centers. The Indian ship repair industry is regulated by the Director General of Shipping through the formation of registered and licenced Ship Repair Units (SRUs). Out of the 35 SRUs registered, only 7 SRUs have been granted the permanent approval. Even though adequate stress (through the Xth and XIth Five-Year Plans), has been laid on the development of ship repair facilities in India, the industry is still at its nascent stages. Considering the cheap availability of labour and India’s strategic location, the potential in this sector is immense but needs to be unearthed.

To conclude, the shipbuilding industry has been on a high growth trajectory during the recent times. However, with fears of slowdown in the global economy, the shipbuilders may face hardships in the near future, particularly in the wake of the fact that global trade volumes may witness a considerable decline. Besides, a huge fleet size representing 45.5% of the existing world fleet as on July 31, 2008 is currently on order. The industry therefore, needs to be nurtured with continuous technological upgradation, control over costs in terms of labour etc. so as to maintain efficiency and prolonged growth. The stagnation in terms of the above factors may witness loss of their market share to newer and cheaper destinations such as Vietnam, which are strongly emerging in the shipbuilding arena.

On the Indian front, the entry of private players has provided a huge boost to the industry’s development. This coupled with some favourable governmental regulations may not only provide incremental employment opportunities (both within shipbuilding & the ancillary industries) but can also result in an incremental contribution to the country’s Gross Domestic Product (GDP).

-ABG Shipyard
-Bharati Shipyard
-Cochin Shipyard
-Hindustan Shipyard"

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