Outlook 1998 was marked by a drop in prices of about 15 to 30% for standard ships.
However, shipbuilding was not the only sector to suffer from deflation.
The prices of raw materials from metals to oil, from textiles to chemicals, from
semi-finished products to electronic memories all fell by about 20 to 30%, caught in a
scissors effect between demand that suddenly collapsed and increasingly abundant
production.
Raw
material price changes
(in % of 1998 compared to 1997) |
|
Variation
in the CRB
raw materials index |
Oil |
-25% |
|
Value on 31.12.98 |
190.72 |
Copper |
-25% |
|
Year-high value |
235.68 |
Nickel |
-24% |
|
Year-low value |
188.28 |
Rubber |
-27% |
|
(variation 20%) |
Wheat |
-16% |
|
|
Having lived with inflation, disinflation and zero inflation, we have
entered a period of deflation. In this sense the shipbuilding yards are neither better off
nor worse off than the other industries. But what are the other industries doing to adapt
to this new economic context?
The most immediate response is to implement the reduction of
overcapacity, even closing the least-competitive production sites. These are often the
most obsolete or those that are in a less favorable economic environment (distance from
the market, tax system, etc.). This is the path chosen by the steelmakers and the
electronic component manufacturers.
The petrochemical industry and the major oil companies have chosen
mega-mergers (Exxon-Mobil, BP-Amoco, Total-Petrofina) and restructuring, with severe
consequences on employment.
What path can the shipbuilding industry follow? It is the victim of
certain particular features which constitute as many handicaps.
It suffers not only from overcapacity but also from an extraordinary
fragmentation. It is under-capitalized and hardly benefits from any technological
advantages. It is an old industry, impregnated with history, riddled with social
conflicts, which must deal with greater inertia than other, younger sectors.
For all that is needed to set up yards - albeit primitive -just about
anywhere are some lifting gear, some welding stations and above all cheap labor. Over the
last few years the improvement in shipbuilding and the lower cost of capital have allowed
investment in slightly more elaborate facilities.
The technology is often simpler and above all more available, because
the shipyards have not been able to keep it to themselves. Everyone agrees that methane
carriers are sophisticated ships. Maybe, but the heart of these ships, the containment, is
the property of engineering companies, and not of the shipyards, which have sold their
expertise just about everywhere around the world. Moreover, there has been little
evolution since the beginning, forty years ago: today there are no longer any methane
carriers under construction in Europe.
The overcapacity is flagrant. But it could be dealt with if it was more
concentrated, less fragmented. However, there is no real dominant shipyard capable of
defending the interests of this branch, and the European, Japanese and Korean shipbuilder
associations do not have the means to make their voices heard, assuming that they can
agree among themselves.
In the mid-1980s, at the height of the shipbuilding crisis, the Korean
and Japanese governments legislated to limit the capacities of their yards.
In 1993 the Korean authorities decided to relax their regulations (it is
true that sale prices had attained peak levels shortly before). As a consequence new yards
were set up, such as Halla-Samho, with its two VLCC construction docks, and Daedong, while
Hyundai HI and Samsung increased the numbers of their docks from seven to nine and from
two to three, respectively. At the same time the yards increased their ship production by
improving productivity or by switching from repair to shipbuilding, a choice made by
Hyundai-Mipo. The Korean market share thus increased from 20% at the beginning of the
1990s to more than 33% today.
In 1996 the Japanese authorities, in order not to be left behind by
Korea, in turn decided to deregulate by allowing the yards to trade nominal building
capacities and to build in tandem when possible. Recently Imabari decided to invest in a
new VLCC construction dock which should start operation in October 2000. The Japanese
shipbuilders have since increased their production by about 25%, even though their market
share has fallen from 37% to 33%.
Of course the soundness of such policies can be queried when, at the
same time, China also wants - legitimately -to obtain the market share it considers to be
its due. It is certain that the imbalance between supply and demand is going to get
worse.
Shipbuilding operates in an open world, except for a few special cases
(Jones Act, flag obligations): there are no quotas or customs barriers, nor any other
natural protection derived from a proximity market, as is the case for agriculture or the
vehicle market.
It is therefore worth wondering whether a new economic order should be
constructed and whether the authorities should be more involved in helping an industry
that does not have the ability to regulate itself.
The devaluations of the European, Japanese and Korean currencies
determine the rate of changes in the order-books of these three major shipbuilding blocs.
This was particularly true in 1998 with the floating of the won against the dollar. It is
distressing for the yards in these three zones that their fate depends to such an extent
on the relative value of the dollar against their own currencies, those of their
expenditure, while they have hardly any means of affecting it and the United States
shipbuilding industry does not occupy a significant position.
It is to be hoped that the introduction of the euro will allow a new
balance to be established. This will take a long time. It will concern not only the
shipbuilding market, but also the second-hand and charter markets. It would suffice
for:
- certain raw materials to be bought in euro in the future to become free
of revenue variations caused by parity fluctuations,
- certain industrial companies (major oil companies, petrochemical
companies or agrifood companies) to commit themselves to long-term contracts in
euro,
- the cruise market to continue its expansion in Europe, to generate a new
dynamism.
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