Shipbuilding industry is a heavy industry undertaking the design, construction, maintenance and testing of various military and civil ships and producing the ancillary equipment.
Since 2012, under the environment of slowdown in the growth of global economy and trade, the shipping market is continuously in depression, and the development of China's shipbuilding industry faces huge challenges. From January to September in 2012, the completion volume of China's shipbuilding was 41.58 million deadweight tons, with a decline of 18.5% YOY. The volume of new ship orders was 15.41 million deadweight tons, with a decline of 46.9% YOY. By the end of September 2012, the volume of reserve ship orders of China's shipbuilding enterprises was 120.9 million deadweight tons, with a decrease of 28.4% YOY, falling by 19.4% over the end of 2011. From January to September in 2012, the completed ship export were 34.34 million deadweight tons, with a decrease of 20.2% YOY; the order volume of ship export was 12 million deadweight tons, with a decrease of 44.5% YOY; at the end of September 2012, the reserve orders of export ships of China's shipbuilding enterprises were 101.19 million deadweight tons, with a decrease of 27% YOY. The export ships separately accounted for 82.6%, 77.9% and 83.7% of completion volume, new order volume and reserve order volume of China's shipbuilding.
In April 2012, China's Ministry of Industry issued the Notice on Further Strengthening the M&A of Enterprises, putting forward to promote the advantageous enterprises to implement combination of the strong, trans-regional M&A, overseas M&A and investment cooperation, in order to raise industrial concentration rate. It also listed the shipbuilding industry as one of the key industries. In the integration process of China's shipbuilding industry, some enterprises with excellent operation performance are expected to ultimately survive. In addition, some shipbuilding enterprises focusing on market segments and specializing in characteristic production will also survive.
In the first four months of this year, the industrial gross production value, economic benefit and total ship export of China’s 80 shipbuilding and its related companies which are subject to be monitored were seen to go downwards and production management condition also got worse.
According to the latest report released by the China Association of the National Shipbuilding Industry (CANSI), the industrial gross production value of those 80 companies amounted to CNY 101.3bn (around more than $16.4bn), a 18.9% drop comparing with the same period of last year, of which, shipbuilding industry achieved CNY 52.4bn, showing a 33.3% fall while marine equipment industry had CNY 7.55bn and ship repair industry, CNY 3.77bn, each having drops of 31.4% and 7.2%.
During the same period, complete export trading value of the 80 companies was tallied to be CNY 46.8bn in total, a 29% drop from the same period of the previous year, of which, the shipbuilding industry had CNY 42bn with a 29.3% fall while the marine equipment industry had CNY 1.87bn with a 37% decline and the ship repair industry, CNY 2.45bn with a 16.5% drop.
For the first four months, the operating revenue of those 80 companies was CNY 66.3bn with a year-on-year decline of 22.5% while total profit was recorded to be CNY 2.05bn, also showing a 56.7% decrease in comparison to the same time period of last year.
Japanese shipbuilding industry officials recently said that “Japanese shipyards has received new orders at a level almost the same with booming period”. At the same time, Korean shipyards successively Schriever high-tech and high-value-added orders as well as offshore orders. Both S.Korea and Japan has find the way to keep their competitiveness in the market downturn by strengthening their innovation capacity.
It is reported that key shipbuilders in Japan and S.Korean have their own research units to track and develop most advance ship technology globally. Even in the market trough, they never suspended investment in the R&D. For example, in the downturn of 2010, the investment in ship technology research and development still accounted for over 15% of the annual expenditure of the six main shipyards in Korean, which gained shipowners’ acknowledge-ment. “Innovation decides how far the shipyard can go”, as an industry expert put it.
Zhang Guangqin, director of CANSI says that order is the eternal theme for shipyards’ survival. China’s shipowners pay more attention to eco-designed and low-cost ships in compliance with emerging new regulations. In the tense circumstances, shipyards have to enhance innovation capacity to develop new marketable ship types.
Many small and medium shipyards choose to develop special ship to avoid the fierce competition with bigger players. Diversifies competition - to develop chemical tanker, exploration vessels, containerships and other high-tech and high-value-added ships is another way for shipyards in the overall overcapacity market.
Besides, Zhang also says that shipyards should put priority on technology negotiation instead of quotation and business negotiation. Quotation should be made after the technical specifications be fully understood.
Jiangsu Province’s Economic and Information Technology Commission reviews Q1 2013 province-wide shipyard finances. The review of the shipbuilding industry’s performance showed that 44 privately-owned shipbuilders out of 66 failed to win new orders and none of major seven builders could ink a contract, with 30% of large corporations recording a loss, reports China Shipbuilding Industry Co.
Shipbuilders’ profit margins in Jiangsu appear to be sharply decreasing from 22% recorded in 2010 and four companies out of thirteen majors reported a loss during the first quarter of this year.
Although the province’s newbuilding delivery was up on the same quarter last year, the scope of increase has plummeted with decreasing orderbook standing at 832 vessels of 37.912-million dwt with a remarkable decrease of 27.7% year-on-year.
Recently, according to this source Jiangsu-based COSCO (Lianyungang) Shipyard was reported to have shut down due to a protracted loss. It appears that shipyards which have slots on schedule for a year and a half are resorting to the expedient of delaying lead time and several small while mid-sized yards face closing their businesses.
For two decades China has been the driving force behind global industrial growth and the demand for shipping capacity. But, its recent dip in growth has been accompanied by some significant trends; bigger increases in consumption and services, less in investment and manufacturing. This is the classic trajectory of a developing economy and shipping is a classic service industry. Just how big is China's role as service provider to the shipping industry likely to be?
Service at the Double…
While China has been generating something like 50% of the growth in demand for shipping capacity over the last decade, it has also made significant inroads on two aspects of the service side of the industry. First, Chinese-built vessels are providing a rapidly growing proportion of the fleet that services the shipping industry. Secondly, China has been growing its own fleet.
Build and Carry…
Since 2010 China has been the pre-eminent shipbuilder, accounting for almost 40% of all deliveries. Chinese-built vessels now account for 20% of the global fleet, almost 11,000 vessels. Moreover, China still holds almost 40% of the current orderbook, about 6% of the world fleet. The average age of the Chinese built fleet is a youthful 7.6 years compared to a global figure of 20.3 years, so relatively little is going to be scrapped soon. Chinese-built vessels are going to become an even more prominent feature of the global shipping scene, quite soon a quarter of the total.
Own and Carry.
China last year passed a milestone when its fleet reached 100m GT. The 6,300+ vessel Chinese fleet now accounts for 10% of the total. Its numbers have increased by 58% since 2005 and its capacity by 280%. That’s twice as fast as the world fleet in numbers and 3.7 times its capacity growth. China now sits only behind Japan and Greece, each of which has about 14%, as an owner of capacity.
The average age of the Chinese-owned fleet is 16.7 years. Few of the diversified major owners have younger fleets – e.g. Japan 14 years, Greece 16 years. Again, scrapping seems likely to be a lesser feature of the Chinese fleet. In contrast, deliveries of Chinese-owned tonnage will feature large; 13.4% of the total orderbook equivalent to 21% of their existing fleet is Chinese-owned. By 2014, the Chinese fleet could account for 12% of the global fleet.
Cash (in) and Carry…
For the foreseeable future, China will be pivotal for global economic growth and the demand for shipping. But as its economy matures it will also cash in on service sectors like shipping. The super-boom allowed China to carve out a prominent position, up to 25% of capacity built in China and 12% Chinese-owned. As the lead builder and owner (albeit of a smaller volume) of contracted tonnage this year, a slower but persistent trend is emerging. The take away Chinese service looks like becoming a take-over.
Year-to-March, China’s 80 shipbuilding and related companies which are subject to be monitored showed decreases all in gross production value, economic effect and total amount of ship exports with aggravated production management.
According to the China Association of National Shipbuilding Industry, in the first three months in 2013, 39 major shipbuilders to be monitored delivered vessels of a combined of 8.41m dwt, showing a 14.4% decrease against the same quarter of last year while winning 8.67m dwt of newbuildings, which represents a 65.9% of increase with 94.98m dwt of orderbook, down by 25.7%.
During the same period, 39 major shipyards exported 6.97m dwt of ships to foreign shipowners, down by 17.4% against the same quarter of 2012 while winning 93.6% increased export ships, a total of 7.94m dwt. As of the tail end of March, orderbook was seen to have stood on a combined 81.2m dwt, down by 24.2%.
Meanwhile, the gross production value of 80 shipbuilding and related companies which are subject to be monitored was reported to be a total of CNY 72.6bn (equating to $11.7bn) in the first quarter of this year, down by 21.3% year-on-year, among which, CNY 36.2bn was posted in shipbuilding industry showing a 30.6% decline comparing with the same quarter of 2012. As for ship equipment industry, CNY 1.99bn of gross production value was seen with a decrease of 24.2% while ship repair industry saw CNY 5.37bn with a 33.5% of drop.
Export trade value of 80 shipbuilding and related companies was reported to be CNY 31.8bn in the same period with a 30.8% decrease, among which, the one in shipbuilding industry was seen to be CNY 25.8bn, having showed a 26.6% decline year-on-year. In terms of ship equipment industry, it reported CNY 890m with a drop of 35% while ship repair industry showed CNY 880m with a 32% drop.
During a period from January to March, revenues of 80 quality shipbuilding and related companies to be monitored were reported to be CNY 48.8bn with a 19.2% decline against the same quarter of last year. Total profits, by the way, were calculated to be CNY 970m with a drop of 68.9% as well.
Amid a slow recovery seen in global shipbuilding market for the first three months in 2013, Chinese shipbuilding industry also showed an increased order intakes comparing with the same time period last year, however, the deliveries were seen to keep decreasing.
According to a statistical data from the China Association of National Shipbuilding Industry (CANSI), China delivered a total of 9.45m dwt vessels in the first quarter of this year, representing a 15.6% decrease against the same period in 2012. As for new orders intakes, they amounted to 9.57m dwt, a 71.1% increase with 107m dwt of orderbook as of the end of March, showing a 24.6% fall, year-on-year and roughly equaling to the level seen at the end of 2012.
During the same period, China delivered a combined 7.83m dwt vessels for export, showing a 17.3% decrease year-on-year while winning vessels of 8.76m dwt from foreign shipowners, a 99.1% rise year-on-year. Orderbook of export ships stood on 91.49m dwt as of the end of March, showing a 22.9% decrease comparing with the same time period of last year.
Export ships are reported to have accounted for 82.9%, 91.6% and 85.5% in overall delivery, order intakes and orderbook, respectively.
New orders at Chinese shipyards saw a 71-percent surge from a year ago during the first quarter, according to the China Association of the National Shipbuilding Industry.
New orders at Chinese shipyards stood at 9.57 million deadweight tons, according to the association. During the same period, the volume of finished vessels declined by 16 percent from a year earlier to 9.45 million deadweight tons while orders in hand dropped by 25 percent to 107 million deadweight tons.
But analysts don't think the increase in new orders means an industry recovery. They believe many shipping companies are placing their orders at a time when shipbuilding costs are at their lowest for years.
"It takes about two years to build a ship. So if you place orders now, you will be able to use the new ships in two years when a market recovery is expected," a market source said.
The association predicts the shipping industry will see a moderate recovery from a year ago. But the difficult market conditions are likely to persist for another couple of years, it said.
In 2012, Chinese shipbuilding industry saw all three indexes drop and experienced severe recessions where almost 300 companies slipped into the red. While market players expect this downturn to continue over the next couple of years, mergers and acquisitions (M&A) have appeared to be a possible solution, however, come to a deadlock of Chinese local governments’ policy to provide protection umbrellas for local companies.
Industrial professionals said that there has been a significant structural change in shipbuilding and related industries around the world after the global financial crisis. China saw a sharp decrease in demands for general merchant ship which is a major vessel type of Chinese yards, such as bulker and etc., and the market share of high-value vessels, very large containership, LNG carrier and so on, has notably increased that China’s shipbuilding and related corporations got to experience a deeper depression due to a lack of investment in R&D.
Thus, for the Chinese corporations to get out of this crisis, the professionals expect mergers and acquisitions among companies to play a key role since a better company will lead a poor one. Also, the Ministry of Industry and Information Technology of China and other eleven ministries jointly released an “opinion on mergers and acquisitions among major companies in the industry” that the issue regarding M&A has surfaced.
Back in 2010, the State Council of China put forward an opinion for M&A among companies and proposals on the issue were suggested for several times in the industry, however, the plans did not come to a settlement. The industry has blamed local governments’ protectionism to be the biggest obstacle.
Shipbuilding and related industries have been the driving force behind the development of industry in extensive sectors and created job opportunities directly and indirectly as being a technology, capital and labor-intensive industry, having also affected on GDP of local governments. The related companies concentrating in coastal cities have played a key role in the development of the cities and brought benefits to productive value and tax revenue increases.
Under this situation, when mergers and acquisitions are actively proceeded in shipbuilding and related corporations, no wonder the fiscal revenue of local governments will be influenced. Thus, the local governments have a negative view on the M&A and prefer to a temporary expedient such as encouraging loans from banks and etc.
Currently, M&A cannot be proceeded properly due to the government’s interruption when it must be led and conducted by the market. Chinese industry is said to be stressing that in order for shipbuilding industry to progress normally, protectionism of local governments must be withdrawn while M&A to be accelerated.
In order for China to become the world’s largest shipbuilding country, it is suggested that Chinese shipbuilding industry needs restructuring.
“China hopes to become the world’s largest shipbuilding country by 2015 and actually, it can be regarded as the biggest shipbuilder in dwt terms already, having showed a great progress in production efficiency and shipbuilding capacity over the last few years,” said Jorg Beiler, DNV Vice President and Area Chair for Greater China.
He pointed out that China’s shipbuilding and offshore industries have been busy for the past three to four years and improved in offshore facility sector even the scale is not that extensive. If Chinese shipbuilding and offshore industries continue on this trend, a very remarkable result will follow, he added.
Regarding an opinion that a restructuring is needed in Chinese shipping, shipbuilding and related industries (demolition business included), he said that China is expecting to maximize profits of the industries through conducting an overall restructuring. Moreover, China has always wanted to meet up with demands from domestic freight and shipbuilding with its own tonnage, however, only large builders can handle the domestic demands while small and medium sized privately-own companies are going through hardships.
Meanwhile, Beiler added that China has looked for its own strength in changes of global shipbuilding industry and it does not seem difficult for the country to adopt a new technology in the future as currently being equipped with the largest shipbuilding capacity. China is also said to account for 40% in global shipbuilding market and thus, it will soon be able to boast its capacity to the level that Korea and Japan have.