Gas Carriers & Cruise Ships to Stimulate China Shipbuilding Industry: Ken Research
How the
China Shipbuilding Market is Positioned ?
China
became the global leader in the global shipbuilding industry in 2009 with a
share of ~% surpassing South Korea. This was made possible by the lower cost of
factors of production in China as compared to Korea and Japan. It is only in
the recent years that China’s shipbuilding is suffering and that is restricted
not only to China.
The revenue of the Chinese
shipbuilding industry has been declining during 2010-2015 due to the plunge in
the global orders. Fall in the global demand for bulk carriers to the tune of
~% is also the major reason which has resulted in decline in revenue as two-third
of China’s yards are specialized in building bulk carriers. The devaluation of
the Chinese Yuan against the USD is also the reason for the decline as
customers observe the devaluation and so are not placing new orders.
The main characteristic of the Chinese
Shipbuilding Industry has been the extensive government support to the
industry. The point of concern is that Chinese labor involved in shipbuilding
has 1/6th of the productivity of that of South Korea and 1/10th
of that of Japan which for a little extent restrains the market
With more
than ~ shipbuilding enterprises at the start of 2010, the number has
drastically fallen to ~ with only ~ active shipyards. The state owned shipyards
have responded to the worsening situation by consolidating its various yard
subsidiaries so as to streamline operations and maximize the facility
utilization. With such measures being taken by the shipyards, the survival of
the handful of the shipyards is not by chance.
The
China Shipbuilding Industry is segmented by the new shipbuilding industry and
the ship-repair industry. The
percentage contribution of the new ship services towards the shipbuilding
industry revenue of China has come down in 2015 as compared to the previous
years. This decrease can be attributed to the huge decline in the number of
orders in 2015 which were recorded at a level of just ~. However, the repair
and maintenance industry’s revenue share in the revenue of the entire
shipbuilding industry has been increasing since 2013. Excessive lower prices
were considered to be the major reason behind the increase in the contribution
of the repair revenues to that of industry’s revenue which was attracting a lot
of repair demand. Repair of high tech, more complex and sophisticated vessels have
been responsible for the increasing share of ship-repair in China shipbuilding industry.
China’s shipbuilding industry is
absolutely dominated by the state owned enterprises and state owned enterprises
have been the drivers for growth in offshore industry of China as evident with
the ~% share in the overall industry revenues. High government investments in
the shipbuilding industry have led to high revenue share of state-owned
players. Joint ventures have been increasing in China. The government has made
it mandatory for the foreign players to establish their technology centers with
the local players in order to support the technology imitation and hence the
government feels that the joint ventures are necessary. Most of the foreign
capital is coming from Europe, South Korea, the USA and Japan, that is, from
the nations which are well renowned for their high end shipbuilding. The
private players in China’s Shipbuilding industry hold a minimal share of ~% in
the industry. Orders for new vessels, if made through the state owned
shipyards, are subsidized by the government and the owner doesn’t have to bear
the complete cost of the vessel. This has taken away the clients from the
private shipyards towards the state owned and reduced their shares.
What are the regions where shipbuilding
industries are concentrated in the China?
In terms of region, Dalian is
considered as the major seaport in the south of Liaoning China. It’s the
financial, shipping and logistics sector for North-East Asia. Dalian port has
shipping and trading links with 160 countries and regions of the world and is
ranked the eighth busiest port in the world, according to American Association
of Port Authorities. Dalian has been given the title of “open city” by the
Chinese government which allows it to receive sufficient foreign investment.
Owing to all these reasons, shipbuilding is considered to be one of the pillar
industries of Liaoning and presence of more number of manufacturing companies
in region has resulted in highest number of ships produced counted to in 2015.
By type of ship, bulk carrier
dominated the shipbuilding industry in China accounting for % of the total
ships produced in China in 2015. Production of Bulk Carriers has come down in
China Shipbuilding Industry. Technological competition for eco ships has been
expanding with Europeans building solar ships and US developing wind powered
ships and hence the orders for such ships had been shifted to the Europeans and
the Americans. There has been a continuous decline in the container ship
manufacturing owing to the decline in imports to Russia. Declined imports from Russia resulted in Russian
embargo and decreasing volumes of container shipping through the gateways to
Russia, via Finland and Baltic countries, which resulted in decreased demand
for container ships. The production of tanker ships in China has been on a
decline since 2010 and the industry has experienced decline till 2015. In 2010,
the tanker production was recorded at, which declined at a rapid pace and
reached at just in 2015. The Dry cargo
ship manufacturing has been on a decline since 2011 and has shown no signs of
recovery since then. The number stood at a level of in 2011 and by 2015, the
number declined to a minimal value of dry cargo ships.
What are the Key Takeaways from
Chinese Ship-Repair Industry?
Shipbuilding
carries no relevance if repair and maintenance facilities are not available in
a country. Labor and raw materials are the major determinants of the
ship-repair industry. China along with India, South Korea and Brazil comes
under the low cost group of countries for ship-repair. This is because of the
lower administrative costs and wages. In comparing, the highest price registered
in China was ~% cheaper than the lowest price registered in South Korea in 2015
which is China’s main competitor in shipbuilding. In terms of the cost split
for the in the Chinese ship repair industry, steel accounts for ~% and labor
accounts for ~% of the total cost of repair. The increase in the revenue from
ship repair services in China was made possible due to the improvement in
technology, evident from the fact that the number of ships repaired came down
in 2014, but the revenue still increased.
Number of ships repaired in China was
at its peak in 2010, at a level of ~, but the market has experienced declining
number since 2010. The Euro debt crisis was the major reason for the decline,
which resulted in the lesser number of ships being repaired in China and
European nations being major clients for Chinese ship repairing companies, the
demand for ship repairing from European countries declines. The recent merger
between the Italian giant of ship repair and the Chinese ship repair giant will
be a big push for the ship repair industry in China and might result in the
rebound in the number of ships repaired as Fincantieri (the Italian giant) will
help Huarun Dadong Dockyard in the development of technical skills, project
management and logistics procedures by sharing its technical expertise mainly
in the cruise sector.
Which Developments have Driven China
Shipbuilding Industry?
Mergers and acquisitions have been
the growing trend in most of the shipbuilding industries in the world. The goal
is to enhance the competitiveness of the sector. The country has experienced
large number of mergers in between 2010 and 2015. The merger of CSIC and CSSC
which will be a big step, as one is a major military ship manufacturers and the
other is a major commercial one, one in
north and the other in south, is on the cards and is about to happen in a few
days from now. China is preparing to award more and more contracts for large
containerships of upto ~ TEU and bulk carriers of ~ DWT VLOCs. It’s in sync
with the construction facilities as most of the ports can’t accommodate more
than ~ TEU boxships. All this has helped the shipbuilding companies in managing
the overcapacities at the shipyards and increasing the market control.
Application of information
technology is the new trend in the shipbuilding industry. Manufacturers are
increasingly focusing on robotics, laser, and shipbuilding precision control
technologies to upgrade or modernize the production processes. China’s main
focus currently in modernization of the processes can be seen from the fact
that the government is focusing on skill development through promoting marine
engineering. Shipbuilding industry is continuously evolving as technologically
advanced and capital intensive business rather than being driven mainly by
labor intensity. In addition, China has formulated off shore engineering
industry as one of the seven strategic emerging industries and has planned to
invest ~ to ~ billion RMB (USD ~ billion - ~ billion) into it as declared in
the 12th five year plan in 2011.
Global commodity prices are
crashing as the boom fuelled by the money printing rampage of the central banks
has started to cool down. This has also resulted in the reduction in the
freight rates.
How is the Competition Structured in China
Shipbuilding Industry?
China shipbuilding industry, where
the dominant force is the state-owned enterprises, is controlled by five major
state owned companies:
·
CSIC handles
the shipbuilding activities in the north and the west of China.
·
CSSC has one
of the largest shipyards in China in terms of shipbuilding output and annual
capacity that is Shanghai Waigaoqiao Shipbuilding.
·
CIMC Raffles
majorly focuses on engineering and construction of deepwater offshore projects
and the company has the best track record in the semi submersibles segment,
major aspect responsible for third leading position of company.
·
COSCO is involved
in the construction of offshore equipments mainly in Nantong, Qidong and
Dalian.
·
CMIH was
recorded as the fastest growing offshore equipment builder in 2015 in China
What are the Future the Future Prospectes for China
shipbuilding industry?
Projections for the future suggest
that China’s Shipbuilding industry is anticipated to witness a CAGR of ~% in
terms of revenues during the period 2016-2020. The future outlook for the
Chinese shipbuilding industry is also contingent upon the investments in the
infrastructure segment by the countries which are considered as untapped
markets by the Chinese maritime analysts for instance, countries in central
Africa and Latin America. If these countries do not have the necessary
infrastructure required at the ports, the Chinese shipping industry will not
have new orders from the owners of ships in such untapped markets.
It can be seen that most of the
developing world and even the global economy is slowing down; so the commodity
prices will remain weak and the shipping rates will stay depressed, in
particular for dry bulk shipping.
Container shipping could be a
benefiting sector as the volume to the western world has started to increase
recently.
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Contact:
Ken Research
Ankur Gupta, Head Marketing &
Communications
+91-124-4230204
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