Shipbuilding and Repair
The shipbuilding and repair industry is made up of government and privately owned (commercial) shipyards that build and repair various types of ships, lighters, and barges. These vessels may be self-propelled or may require towing by another vessel. For discussion of transportation services via ship, see also Water Transportation .
At the close of the first decade of the twenty-first century, Asian shipbuilders remained the clear leaders in the shipbuilding and repair industry, with South Korea, China, and Japan holding rank as three of the the top four, and the European Union (EU) slipping in at number three. United States shipyards lagged considerably behind Asia, mainly due to years of Asian government subsidies to the region’s shipyards. Contention over worldwide subsidies, rising global labor and construction costs, mergers, joint ventures and other collaborative relationships, and a shrinking pool of qualified workers were key issues.
As of May 2005, orders for oil tankers and bulk carriers fell from the previous year by 35 and 16 percent, respectively, but containership contracts rose nearly 70 percent as the result of increased trade in the Asia Pacific region. Demand for large containerships stagnated by the
mid-2000s as ship owners waited to see if world trade would make use of all the new ships that would enter service beginning in 2006, as reported by Bruce Barnard in The Journal of Commerce Online. However, the market for smaller ships was still performing well, as the need for ships to service large vessels grew.
As of April 2007, most U.S. shipyards were enjoying a booming business while repair yards were struggling to survive. More and more navy ships were being kept out at sea for longer periods of time. Consequently, maintenance dollars were being moved to operating accounts. In addition, large steel jobs were being sent overseas.
Additional concerns became apparent when the Metal Trades Department of the AFL-CIO sued the coast guard for allowing domestic shipyards to use preassembled foreign ship parts and engines. The suit claimed that the coast guard ignored Jones Act requirements that ships moving between U.S. ports be built in the United States.
By 2008, the global shipbuilding industry was dominated by South Korea’s “big three” builders, that together produced more ships than the rest of the global building industry combined. In order of rank in 2008, South Korea carried 50.6 percent, followed by China at 34.4 percent, the European Union at 5.7 percent, Japan at 3.7 percent, the Philippines at 1.5 percent, and the remainder of builders at 4.1 percent.
Momentum was evident for the concept of a “green passport” for ships. The document, formulated by members of the Marine Environment Protection Committee in 2003, would contain an inventory of all materials potentially hazardous to human health or the environment used in the construction (and subsequent operation) of a ship. It would be produced by the shipyard during the construction stage and passed on to the purchaser of the vessel. The document format would record subsequent changes in equipment and materials, and successive owners of the ship would be required to maintain the accuracy of the “passport.” The final owner would be responsible for delivering it, along with the vessel, to the recycling yard.
ORGANIZATION AND STRUCTURE
The International Maritime Organization (IMO), a special agency within the United Nations, adopts maritime conventions to improve maritime safety and prevent pollution. The IMO also intervenes in legal issues, such as liability and compensation, and works to promote marine traffic. Members of the IMO comprised most of the world’s shipping nations, or about 164 governments, by 2004. The IMO’s budget for 2004-05 was more than US$84 million. Member contributions are based on the size of the country’s merchant fleet. Top contributors to Page 1114 | Top of Articlethe IMO as of 2005 included Panama, Liberia, the Bahamas, Greece, the United Kingdom, and Japan.
Recognizing that technological advances can be a key component to increasing marine safety and reducing pollution, the IMO’s Technical Cooperation and Facilitation, Maritime Safety, Legal, and Marine Environment Protection committees devise technical resolutions to address these issues. Resolutions and recommendations are then presented to the IMO’s governing body, which is made up of an assembly of representatives from its 164 governments. The assembly typically meets every two years.
The shipbuilding industry has shifted eastward over the past three decades. Western Europe’s shipbuilders lost market share first to Japan, then to South Korea, and more recently to China. The primary reasons for the European Union’s decline in the industry was due to Asian government subsidies to the shipbuilding industry and the advanced building techniques perfected by South Korean builders. Losing the ability to compete on pricing, European yards were forced to specialize, focusing on gas and chemical tankers, and cruise ships. In 2001, the European Commission, which regulates competition in the European Union, asked for support for European subsidies from the European Union’s General Affairs Council in order to bring the European Union in line with the Organization for Economic Cooperation and Development (OECD) agreement to end subsidies and other forms of aid to shipbuilders and repairers. The agreement was opposed by the United Kingdom, Denmark, Sweden, the Netherlands, and Finland. The United States opted not to participate in the agreement.
By 2002 tensions between the European Union and South Korea were rising, as the European Union accused its Asian competitor of price dumping, or pricing a vessel at less than fair market value in order to undercut other builders. When negotiations between the two parties broke down, the European Union filed a complaint with the World Trade Organization (WTO) in October 2002. According to the European Union, by selling ships below production cost, South Korea was destroying Europe’s shipbuilding industry by causing layoffs and bankruptcies. Nevertheless, some industry observers argued that the European Union’s maritime status was improving, and that its claims were somewhat misleading since many European-owned vessels fly so-called “flags of convenience,” which hide true national affiliations. In March 2005, the WTO gave South Korea 90 days to end the questioned shipbuilding subsidies.
Fierce competition, government subsidies, overcapacity, high labor, and production costs, and an Asian financial crisis all contributed to decreasing revenues among most commercial shipbuilders worldwide. The worldwide practice of government subsidies contributed to an artificial pricing market for the industry and led to price dumping. This in turn created a kind of domino effect among shipbuilders and repairers. By May 2005, orders for containerships had declined.
By the mid-2000s, Asian shipyards continued to produce the bulk of the world’s large commercial vessels—tankers and bulk carriers. South Korea, the world’s shipbuilding leader, received orders for 159 ships from 26 countries during the first quarter of 2004 alone, with compensated gross tons (cgt) ordered reaching a record 5.26 million, up 31 percent from the same period in 2003. South Korea completed nearly US$4.5 billion worth of ships during the first three months of 2004, a number that was expected to reach or exceed US$12 billion by the year’s end. South Korea’s record-breaking pace continued through the first half of the year, by which time it had received orders for 256 new vessels, contributing to a backlog of 847 vessels.
Malaysia vowed to strengthen its capacity and capability of shipbuilding and ship repair under the recently launched Third Industrial Master Plan. This effort was among the five strategic thrusts for long-term growth and viability of the marine transport subsector. Related areas of concentration were aimed at enhancing domestic capabilities in building and repair as well as intensifying and upgrading engineering skills, strengthening infrastructure and support facilities, strengthening institutional support, and expanding activities in the fabrication of offshore structures.
European yards remained the largest producers of cruise ships and ferries. Lagging far behind in this sector, U.S. yards continued to focus primarily on military contracts, with only a few yards competing for international commercial contracts. In early 1998 the largest private U.S. shipyard, Virginia-based Newport News Shipbuilding Inc., announced that it would stop building commercial ships altogether and would focus instead on navy contracts. Late in 2001, Newport News was acquired by Northrop Grumman Corp. in a deal valued at US$2.6 billion. Northrop combined the two shipbuilding divisions, forming a US$4 billion shipbuilding enterprise named Northrop Grumman Newport News. As of mid-2004, the unit was one of only two entities capable of designing and building nuclear-powered submarines.
In March 2007, Russian President Vladimir Putin signed the decree “on the open joint-stock company Amalgamated Shipbuilding Corporation.” Under the presidential decree, the Centre for Shipbuilding and Ship Repair Technology was established by Russia’s Central Shipbuilding Technology Research Institute (St. Petersburg). Main activities will focus on “development and implementation of new-research-intensive shipbuilding Page 1115 | Top of Articleand ship repair technologies; technological support for the design, construction, technical maintenance, repairs and disposal of ships and vessels in Russia and abroad; the design and technical upgrade of the production assets of shipbuilding and ship repair centres; the design and production of ship fittings and shipbuilding engineering output; the development, production and supply of specialized equipment and technological fittings.”
The future of Canadian shipbuilding and repair remained uncertain after new Prime Minister Stephen Harper was sworn into office. Industry insiders were excited about Harper’s statement calling for three Canadian-made icebreakers capable of promoting the country’s goals for protecting Canada’s sovereignty in the Arctic. There was speculation that the icebreakers, whether armed or not, would be assigned to the Canadian Coast Guard. Because the Coast Guard is in charge of enforcing northern shipping rules, the proposed move was thought to be less threatening than having the role assigned to navy vessels.
Leading U.S. shipbuilders were primarily engaged in servicing military (navy) contracts. As a result, they have not been active participants in the commercial sector until recent years. Reports show that without drastic improvements in labor and production efficiency, increased use of technology, changes in management culture, and the removal of global government subsidies, the U.S. industry is not likely substantially to increase its market position in the foreseeable future.
A clarion call was issued for “lean enterprise” to be practiced by the shipbuilding and repair industry. This involved trimming costs, simplifying production lines, and cutting down on inventory, all with the goal of reducing turnaround time and eliminating waste. Empire, a Norfolk industrial supply house, began following lean guidelines in 2005 after it was requested to do so by its largest customer, Northrop Grumman Newport News, according to an article in the Virginian-Pilot. The navy was also reportedly trying to become “lean” with related methods resulting in a savings of more than US$230 million in fiscal year 2005.
RESEARCH AND TECHNOLOGY
As safety, pollution, and competition became increasingly important issues, improvements in ship design and capacity, yard and port expansion projects, and new government and international programs were implemented. Typical vessel capacity expanded rapidly during the closing decades of the twentieth century. For example, in the 1960s typical capacity was 1,000 TEUs (twenty-foot equivalent units). By the 1970s it was 2,000 TEUs, by the 1980s it had increased to between 3,000 and 4,000 TEUs, and by the late 1990s vessels of 6,000 TEUs, with the capacity to carry 8,000 TEUs, were common. In 1998 South Korea announced its intention to build 8,000-TEU containerships. The vessels would be constructed by Samsung Heavy Industries, one of the country’s leading shipbuilders. Samsung’s proposals called for vessels of 345 meters in length, 45.3 meters in width, draft of 27.0 meters, and a deadweight of 150,000 tons. To increase fuel efficiency and loading capacity, the hull design was to be 5 percent lighter in size-to-weight ratio than the 6,000-TEU vessels of its Japanese competitors. Samsung was working with a German firm to run tests of the structural integrity of their new hull design. The vessels would be powered by a 93,000 hp diesel engine and would be able to reach a speed of 25 knots. Samsung expected the new vessels to be in production by 2000. A U.S. Army Corps of Engineers study reported that by the end of 1999, some 34 percent of the global box ship fleet would be made up of more than 300 vessels of 4,000 TEUs or more. One German study estimated the cost of the 8,000-TEU vessel to be US$110 million to US$120 million.
In response to the need for ports capable of handling ever-increasing amounts of cargo and supersized vessels, in early 1998 the port of Hong Kong announced its plans to increase the port’s capacity. In 1997 Hong Kong handled 14.5 million TEUs of containers and retained its position as the world’s busiest container port. Its 1998 capacity was forecast to reach nearly 16 million TEUs of containers, a 7.5 percent increase in container traffic from the previous year. The Hong Kong Port Development Board chairman noted in World Trade that port expansion was necessary to keep up with industry changes, notably increasing vessel sizes and the formation of large shipping consortia.
It is generally agreed that the building of even larger container ships is inevitable. Vessels of 10,000 TEU and above are being designed, and there is no engine power constraint for craft of this size.
Ranked second in the world among leading shipbuilding nations, China announced a similar port expansion project as part of its strategy to turn Shanghai into an international shipping center. Included in the US$633 million expansion plan is dredging a harbor channel to accommodate deep-draught container vessels. Dredging is expected to be completed by 2020. Other waterways would be dredged as well for container traffic into the Jiangsu and Hubei provinces. Construction would also begin on the country’s largest and most state-of-the-art shipyard at Waigaoqiao, in the Pudong New Area of Shanghai.
BAE Systems Ship Repair President Al Krekich expressed his concerns about the graying of his industry’s workforce. Page 1116 | Top of ArticleHis remarks were shared during the “Momentum in Shipbuilding and Repair” panel discussion at the Propeller Club of the United States’ Maritime Industry Advocacy Group international convention. One of the industry’s biggest emerging challenges was recruiting young people. The average age of the estimated 800 workers at BAE Systems’ Norfolk shipyard was 50. That was younger than estimates for the Norfolk Naval Shipyard in Portsmouth. According to an article in the Virginian-Pilot, Krekich said that “an injection of youth” was needed in order for the industry to keep moving forward.
Another convention panel member, Maritime Industry Consultants Principal John Graykowski, said that retention of workers was also a major concern. Graykowski strongly advised establishing a “national shipbuilding university” to produce highly trained workers capable of working with technological advances that could also contain costs. Shipbuilders Council of America President Alan Walker said that many shipyards created apprentice programs for training younger employees, but noted that the United States was not viewed as promoting the kinds of skills needed for shipyard work.
South Korea During the mid-2000s, South Korea’s top shipbuilders were Hyundai Heavy Industries Co. Ltd. and Samsung Heavy Industries Co. Ltd. Daewoo Heavy Industries Co. Ltd., a leader during the early 2000s, was exiting the shipbuilding industry. As reported by The Journal of Commerce Online, orders at South Korean shipyards were full until the end of 2007, and some orders were being taken for 2008 delivery.
Hyundai Heavy Industries Co. Ltd. (HHI)
As of 2010, Hyundai Heavy Industries (HHI) enjoyed status as the largest shipbuilder in the world. HHI formerly was a subsidiary of the Hyundai Group, a large diversified conglomerate, but in February 2002 it became an independent enterprise. This involved HHI’s takeover of the Hyundai Mipo Dockyard and Hyundai Samho Heavy Industries. In 2004, HHI employed almost 26,000 workers across six business divisions. In addition to the shipbuilding division, these included construction equipment, electro/electric systems, engine and machinery, industrial plant and engineering, and offshore and engineering. HHI’s 2004 revenue from new orders was US$9.35 billion, 4.7 percent less than US$9.8 billion in 2003. The company anticipated solid revenue growth in 2005 due to price increases implemented after dramatic increases in steel costs and increased demand for containerships and tankers. For 2008, HHI reported sales of US$27.03 billion and 25,240 employees. Its shipbuilding division made tankers, bulk carriers, containerships, and high-tech gas and chemical carriers.
Samsung Heavy Industries Inc. (SHI)
South Korea’s Samsung Heavy Industries (SHI) was an affiliate of the Samsung Group, a conglomerate with holdings in machinery, electronics, chemicals, finance, and motor engines. SHI was the second largest shipbuilder in the world, and a part of the “big three” shipbuilders of South Korea. SHI focuses mainly on shipbuilding and offshore business, but also competes in the construction equipment market. In addition to ship automation and building automation systems, SHI designs and manufactures large passenger ships, liquified natural gas (LNG) carriers, shuttle tankers, and drill ships. In 2004 SHI reported US$4.46 billion in annual sales and employed 8,572 people. By 2005 annual sales had increased to US$5.47 billion. It announced plans to establish a joint venture with Malaysia Marine and Heavy Engineering (MMHE) to repair LNG carriers. The joint venture aims to tap into the LNG ship repair market following an increase in orders to construct these carriers. To be capitalized at US$1 million, the Kuala Lumpur-based firm was established as 30 percent owned by SHI and 70 percent owned by MMHE. SHI has overseas facilities, including a Chinese factory devoted to the production of ship blocks. By 2008, revenues had increased to US$8.4 billion with a workforce of 12,481. In 2009, SHI was contracted to build Utopia, a residential cruise ship that will be the largest passenger ship ever built in Asia.
Daewoo Heavy Industries Ltd. (DHI)
Daewoo Heavy Industries (DHI) was a leading Korean shipbuilder during the early 2000s. By mid-2004 its parent company, the Daewoo Group, was spinning DHI off as an independent company. In addition, DHI had divested its automobile and shipbuilding units, with the latter going to Australian interests. From this point forward, DHI operated the following divisions: construction equipment, industrial vehicles, machine tools, factory automation systems, diesel engines, and defense systems. The company’s shipbuilding business unit once produced LNG carriers, submarines, double-hulled crude-oil tankers, bulk carriers, and containerships. DHI realized a revenue of US$4.1 billion in 2007.
In 2004, the Shipbuilder’s Association of Japan (SAJ) included 19 members with combined orders of eight million tons. Among the members were seven major companies, most of which had broad-ranging non-marine business sectors. The shipbuilding segments alone of these seven companies made up approximately 11 percent of their total corporate sales. The 11 other SAJ members were medium-sized firms that relied on marine-related contracts. For them, the shipbuilding and repair segment comprised 86 percent of their total corporate sales.
Mitsubishi Heavy Industries Ltd. (MHI)
As with many of Japan’s leading shipbuilders, MHI is a fully diversified conglomerate. MHI’s business units cover aeronautics, industrial plants and equipment, and steel construction and shipbuilding, to name just a few. In 2003 shipbuilding represented about 8 percent of MHI’s US$21.6 billion in revenues, behind machinery manufacturing and power systems. MHI’s shipbuilding sector includes containerships, LNG carriers, very large crude carriers (VLCC), and marine pollution and offshore production structures and equipment. In 2007, MHI gained a revenue of US$38.1 billion and had a workforce of 63,500.
Kawasaki Heavy Industries Ltd. (KHI)
Kawasaki (KHI) was another of Japan’s leading shipbuilders, with 2008 sales of US$15.08 billion and more than 30,500 employees. KHI has two shipyards, Sakaide and Kobe, both more than 100 years old. KHI’s shipbuilding expertise covers bulk carriers, tankers, LNG carriers, highspeed ferries, research submersibles, containerships, and liquid petroleum gas (LPG) carriers. In addition, KHI supplies a variety of marine equipment and engines. Like Mitsubishi Heavy Industries, KHI is a diversified conglomerate with business units covering environmental products, industrial plants, aeronautics, general purpose engines, construction, and civil engineering in addition to its shipbuilding and marine engineering business unit.
MAJOR COUNTRIES IN THE INDUSTRY
In 2002 South Korea edged ahead of Japan to become the world’s largest shipbuilder. That year, the Journal of Commerce Online reported that South Korea achieved a market share of 31.8 percent, ahead of Japan’s 31.7 percent. Although the world-leader position has shifted between the two nations, by 2003 South Korea retained its position ahead of other countries with 16 million gross tons in new orders, keeping its lead over Japan. During the first half of 2003, Korea’s orders for new ships increased 171 percent from the previous year, and by the end of 2003 Korea held 43 percent of the global market. At 232 vessels—7.8 million tons—this half-year total surpassed the country’s figures for all of 2002. By comparison, Japan received orders totaling 4.99 million tons between January and August of 2003, up 13 percent from the same period the previous year. During the first half of 2004, South Korea continued at a record pace, recording orders for 256 new vessels—9.06 million tons—an increase of more than 16 percent from 2003. By 2008, South Korea had continued its dominance of the market with 50.6 percent, and orders totally 12.4 million tons. This dominance is largely attributed to South Korea’s advanced shipbuilding technology in perfecting the block construction technique, the strong work ethic of its workers, and the efficiency and high productivity of its yards.
South Korean shipyards expanded capacities in the 1990s. As of early 2001, they were able to exploit a depreciation of the won and boost their business to a point where they reported a three-year backlog. Korean construction includes tankers and bulk carriers, roll-on/roll-off (ro/ro) vessels, car carriers, containerships, chemical carriers, and others. Most of Korea’s shipbuilding industry is located in the South Kyongsang province and comprises approximately 80 shipbuilding firms that construct, salvage, or repair a variety of vessels. Korean shipbuilders, like most in the Asian shipbuilding nations, rely heavily on computer-aided design (CAD), or computer-aided design/computer-aided manufacturing (CAD/CAM) and automation of facilities.
High-speed ferries, supersized containerships, and liquefied natural gas carriers were particular highlights of Korean shipbuilding. Importantly, Korea pioneered the world’s first double-hulled tanker, a significant contribution given that international conventions now require that single-hulled oil tankers be replaced by double-hulled vessels. Both the Korean government and the industry itself invested heavily in technology and automation to improve efficiency, contain costs, and meet production schedules. To further spur industry growth, the Korean government plans to expand its shipbuilding and repair facilities and to create nearly 30 new ports. By 2011, South Korea expects to double its seaport capacity to accommodate 560 million tons of freight per year. Despite such positives, the Asian financial crisis of the late 1990s hit Korean shipbuilders especially hard, causing several to file for bankruptcy.
Although it trailed its Asian counterparts in the early 2000s, China experienced explosive growth by the mid-2000s and surged to second place in production. In order to reach its goal of becoming the world’s shipbuilding leader by 2015, China was investing billions of dollars to improve its position. After allowing foreign investment in its ports in March 2002, China benefited from US$2.2 billion in investments that year, followed by an estimated US$3.6 billion in 2003. This effort was met with significant results. From a paltry share of only 0.8 percent in 1982, China saw its stake in the global shipbuilding market increase to 12.6 percent by the end of 2003. That year, orders for new vessels increased 173 percent, and the nation completed a record 6 million deadweight tons (dwt). This was an increase of 46 percent from 2002, surpassing forecasts of a 5 million dwt increase.
As of May 2005, shipbuilders in the province of Shandong in east China held orders for 120 ships totaling Page 1118 | Top of ArticleUS$566 million, as reported by Xinhua News Agency. China’s shipbuilding industry is led by the China State Shipbuilding Corp. (CSSC) and the China Shipbuilding Industry Corp. By 2010, CSSC was expected to complete the world’s largest shipyard. Located at the mouth of the Yangtze River on the Shanghai coast, the new yard will be capable of producing up to 12 million deadweight tons per year. Although the new shipyard, along with its burgeoning economy, would go far to help China achieve its goal of world shipbuilding dominance, industry analysts revealed a number of significant challenges. These included falling shipping container rates, the competitiveness of Chinese currency in comparison to the U.S. dollar, a possible containership glut, and productivity issues at China’s stateoperated companies. In 2008, China carried 34.4 percent of the production market with 8.4 million tons.
In 2003, the European Union indicated that its shipbuilding world market share fell drastically during the early 2000s, from 19 percent in 2000 to 13 percent in 2001. In 2002, a 50 percent drop in orders caused the European Union’s market share to decline even more, to 7 percent, which then rose slightly to 8.7 percent by the end of 2003. By 2008, the rate had slipped yet again to 5.7 percent of the market.
Although the European Union attributed a significant amount of its market share decline to alleged price dumping by Korean companies, some industry observers argued that conditions were not as bad as the European Union claimed. In June 2003 the Journal of Commerce Online said that “Europe is strengthening its position as a maritime power with dominant market positions in almost every sector from tankers and bulk carriers, to cruise liners, containerships and liquefied gas carriers.”
In addition to mentioning European-owned vessels flying under the flags of other nations and European interests in such shipping industry leaders as A.P. Moller, the article went on to explain that German banks were “Europe’s ‘unseen’ shipowners,” who “have built up a massive fleet of container vessels for charter thanks to investors seeking a tax-efficient home for their savings. This is a big business with charter tonnage now accounting for nearly 50 percent of the fleet of the world’s top 30 liner shipping companies.”
The late 1990s brought increased consolidation and collaboration among European yards in an effort to remain competitive. Drastic workforce reductions throughout the European Union were common. By 1996, European shipyard employment was about 113,000 and further reductions during 1998 were expected. In 1998, Germany, Poland, Spain, and Denmark were expected to experience the greatest additional reductions in labor. The employment picture was more optimistic for Norway, the Netherlands, and Italy. Northern European countries had higher wages on average than their southern counterparts. There were also strong contrasts in work hours, ranging from an annual working hour rate of 1,400 to about 2,300 hours. In the 1960s, the Netherlands shipbuilding workforce numbered around 50,000 workers. That figure has dropped to about 10,000 employees in 100 shipyards with only 4,000 being employed in building oceangoing ships.
In 2007, plans were announced to merge the three U.K. yards still in the business of building surface warships into one operation. Industry insiders predicted that the deal would lead to an even split of ownership between two companies, VT Group and BAE Systems, but that BAE would control more than 50 percent of the voting rights. BAE and VT yards are slated to do most of the work on two 65,000-metric ton aircraft carriers for the Royal Navy. According to Nick Chaffey, global head of defense at PA Consulting, consolidation in naval shipbuilding is not a European phenomenon. It is considered to be a global issue that is even beginning to affect the United States. Chaffey also noted that current actions are helping to prepare for the period somewhere between 2015 and 2020 when orders from the British will likely dive.
Fourth-place Japan saw new ship contracts double during the first quarter of 2004, rising from 1.2 million compensated gross tons (cgt) to almost 2.5 million cgt. By the early 2000s, South Korea had pulled ahead of Japan to lead the shipbuilding industry. According to Korea’s Ministry of Commerce, Industry and Energy, the nation’s research and development technologies have given it an edge over Japan in terms of being able to build more customized vessels for its customers, whereas Japan has produced more standard-feature ships.
Japanese shipbuilders had previously managed to maintain their lead over South Korea, in spite of the Asian financial crisis of the late 1990s. This was partially due to differences in how both nations obtained construction materials. Japanese shipbuilders relied on domestic suppliers for such high-end additions as equipment, whereas Korean companies strongly relied on imports of machinery and steel. Japanese yards also relied heavily on high technology, particularly computer-aided design and drafting, and Japan’s largest shipbuilders were broadly diversified conglomerates with subsidiaries in heavy engineering sectors.
Japan, like the other leading shipbuilding nations, witnessed a decline in prices despite an overall increase in the world’s shipbuilding orders. By the end of 2000, employment in the shipbuilding industry was 85,000, and further workforce reductions were expected, reflecting a global trend. Japan finished 2003 with a 28 percent global market share. By 2008, Japan’s percentage had slipped dramatically to 3.7 percent of the industry.
The United States
During the early 2000s, the U.S. shipbuilding industry ranked tenth in the world in terms of tonnage built. Productivity in the maritime industry is quite low compared to other large manufacturing sectors such as the aerospace and automobile industries. Shipbuilding in the United States has historically been considered a strategic industry, supporting both military and commercial interests. As of 2002, the U.S. shipbuilding and repair industry consisted of about 250 private companies and five publicly owned and operated repair yards. U.S. shipbuilding and repair revenues totaled US$10.2 billion in 1998. About 10 percent of the companies accounted for 85 percent of these revenues. The shipyards on the East and Gulf coasts account for more than 80 percent of the revenues for the entire industry.
Lack of technological innovation and automation, failure to upgrade worker skills, and a lack of collaborative partnerships among yards, combined with complicated and inefficient management hierarchies all contributed to the United States’ low market share. In contrast, Asian yards excelled at using new technologies, regularly upgrading workers’ skills, developing collaborative ventures, and maintaining flatter, less complex management hierarchies. Outside forces, particularly foreign government subsidies, price dumping, and overcapacity, further contributed to the problem. At the turn of the century, efforts were also under way to streamline yard operations and increase efficiency by means of technology and flatter management structures.
In 2003 the U.S. shipbuilding industry, and some 2,000 workers, benefited from a defense appropriations bill that included more than US$1 billion to build two new ships at Northrop Grumman’s Avondale shipyard. Despite this good news, the overall outlook for U.S. shipbuilders paled in comparison to those in Asia.
In 2006 industry insiders applauded the navy’s new system of awarding ship repair contracts. The “multiship, multioption” allows shipyards to win contracts to maintain a class of ships. This process replaced the former single-ship awards. The navy also made it possible to generate more money for shipbuilding with its quest to build a 313-ship fleet. A reduction in naval fleet size, from approximately 600 ships in the late 1980s to roughly 275 by the 2000s, hurt big shipbuilders and smaller suppliers. Diversification was considered to be a key strategy for survival. Reduction in the navy’s maintenance budget, however, created cause for concern.
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