Concentration On Gas Carriers and Cruise Ships to Stimulate China Shipbuilding Industry: Ken Research
Posted on 08 August 2016 by KenResearch Manufacturing And Construction,
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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Ankur Gupta, Head Marketing & Communications