New orders are in sharp decline and market share of European shipyards is slowly being whittled down, going from over 11 % at the end of 2001 to 8.3 % at the end of 2002.

The striking point lays more in the decline in the orderbook of European shipyards than that of their market share. In practice, the former fluctuated within a range between 8 and 9 million tons right throughout the 90's. This year, it went from 8.5 million tons to 6.2 million tons.

This highlights the huge difficulties of European shipbuilders when confronted with a fall in prices. These same yards were able to notch up at the end of 2000 orders up to 3 years in circumstances much more favourable than in 2002. They then combined three advantages:

• firmer levels of prices (a better economic climate and a stronger demand),

• subsidies up to 9 % of the sales price,

• a more favourable dollar/euro exchange rate in a market where ship's values are normally expressed in dollars.

Overall conditions are quite different today.
Demand for specialised ships, which comprises a large part of European production (cruise ships, ro-ros, ferries, chemical carriers, LNG carriers) has remained weak or has been displaced towards Far Eastern yards.

Thus, the major chemical tankers operators like Stolt-Nielsen or Jo Tankers who ordered series of ships built in Europe in the 90's, have turned towards Japanese shipyards. One should note however that European yards capable of building ships of this type are becoming more and more scarce. A large part of these orders for chemical carriers fitted with stainless steel tanks have been placed by Japanese owners, either on long-term employment with these European operators, or for domestic account. These chemical carriers have fewer tanks and segregations and generally speaking are less sophisticated than the ships ordered in the 90's, built by European yards. But the competition is so intense today that operators are obliged to reconsider their technical preferences.

Japanese shipyards have been pursuing for a number of years a path of standardising ships, better suited for the industrialisation and thus giving a better control over costs.

Cruise ship operators who made massive investments in 1999 and 2000 are waiting in the wings. Only three orders were placed in 2002 after only one in 2001.
European shipyards, with the exception of one, have not been able to get orders for LNG carriers despite a steady demand.

Several European shipyards have gone bankrupt or are in the process of going into liquidation : in Norway (Fosen ' Mjellem & Karlsen), in Germany (Flenderwerft ' SSW), in Italy (Fratelli Orlando), in Northern Ireland (Harland & Wolff), with continuation of their activities or not (Szczesin). Orskov (Denmark) announced that it will stop its newbuilding activities in the course of 2003. Others have announced partial unemployment or lays off to match their orderbooks.

The dispute between European shipyards and their Korean counterparts is still going on. The Brussels Commission has finally registered a complaint with the World Trade Organisation and has proposed to re-establish, as a temporary means of defence (awaiting the outcome of this action), subsidies for shipbuilding up to 6 % for a period of 18 months starting from October 1st 2002 for certain types of ships such as containerships, product tankers and chemical carriers.

The depreciation of the dollar against the euro of about 17 % unfortunately makes any such aid meaningless in a market largely dominated by dollar transactions.
European shipyards know today that they can only rely on themselves to survive. The strategies being adopted are various. More and more yards are trying to keep afloat by sub-contracting the construction of the hulls to East European countries or to Ukraine whilst remaining prime contractors and securing outfitting. Some shipyards like Aker, Damen, A.P. Moller have even invested in facilities in Romania, Ukraine or Lithuania. Other shipyards are counting on military orders (Izar, Fincantieri, HDW).
A further reduction in the production capacity in Europe is again foreseeable for this year.
  

• Germany

Only two years ago German yards had signed up for 46 containerships over 1,000 teu, totalling nearly 100,000 teu. In 2002 this figure was divided by three. The time when Aker-MTW and Kvaerner-Warnow were taking in orders for ships of 5,000 teu following the example of S.E. Asian yards seems now very distant.

Shipyards such as Flender Werft, SSW, Thyssen, Lindenau have registered hardly any significant orders. Meyer Werft had the two options of RCCL put back by 9 months, but nonetheless was able to get the order for a ferry for BAI and a passenger ship for the Indonesian government. Babcock Borsig sold its participation in HDW to Bank One Corporation. This shipyard is still deliberating about keeping its activity in merchant shipbuilding, given its predominance in the construction of diesel propelled submarines. In other matters, Thyssen-Bl'hm + Voss could acquire a 50 % participation in HDW in 2004.

The absence of new orders for ro-ros also had its effect. Deliveries of ferries by German yards are steadily declining. Six ships of over 15,000 gt were delivered in 2001, four in 2002, and two units should be delivered before 2004.

Smaller yards like J.J. Sietas or Peene Werft, specialised in building multipurpose cargo or heavylift ships are being hurt by Asian competition.

• Italy

Spain

The majority of orders placed in 2002 with Spanish shipyards were for domestic account. It was principally for ro-ros. At the end of the year, IZAR was in negotiations with a Venezuelan owner for an order for three asphalt carriers of 27,000 dwt. IZAR has succeeded entering the dredging market by importing technology from Holland and Germany.

IZAR should deliver in 2003 the first of 5 LNG carriers ordered in 2000/2001 and hopes to carry on in this niche of the market despite very active Asian competition.

Finland

The two Finnish shipyards Aker Finnyards and Kvaerner Masa saw their mother companies merge in February 2002. Specialised in building ro-ros and cruise ships, these yards, after no orders in 2001, signed several contracts at the end of 2002.

Masa Yard won the order for a giant luxurious ferry of 75,000 gt for the Norwegian group Color Line. Aker Finnyards got the order for a cruise ship of 33,000 gt for Birka Line and a ferry sister to the 'Romantika' for Estonian account, 40,000 gt, both for delivery in 2004.

The last large Danish shipyard Odense Lindo continues its construction of giant containerships, of which the latest design should approach the 10,000 teu mark. These containerships are then managed by the shipping arm of the A.P. Moller group, also owner of the yard. This shipyard has not had any order for merchant ships this year and plans for reducing employees are being examined. Nonetheless there has been a diversification in the military shipbuilding following an order by the Danish Navy for two large multipurpose supply ships. The Orskov shipyard has announced that it will stop newbuildings in order to concentrate on ship repairs in 2003.

Holland is noted for producing small size ships (generally less than 10,000 dwt). The level of orders has however been less in 2002 and comprises multipurpose cargo ships, product and chemical tankers and dredgers. They are suffering from a fierce competition from Chinese shipyards who have plunged into this sector, abandoned by Korean yards chasing larger size ships, or the Japanese who are very reluctant to build specialised ships for the account of non'domestic owners. It is worth noting that the Bjilsma shipyard got an order for a 1,300 cbm LNG carrier to handle the distribution of natural gas on the Norwegian coastline.

The significant event in 2002 was the merger of the two old rivals Aker and Kvaerner giving rise to a group active in Norway, Finland, Germany, Romania, Brazil, and the U.S.. The new entity spreads over 12 sites in Europe and employs 13,500 people with a turnover of some 20 billion Norwegian kroners.

A long-standing specialist in the building of ships dedicated to the offshore oil industry, Norway has continued to register a satisfactory level of orders, even though in decline. Seventeen PSV or AHTS have been ordered in 2002. As a general rule, hulls for these units are built in Romania before being towed for outfitting in Norway. It is to be regretted that the Fosen shipyard, which built the cruise ship 'The World' for Residensea, has gone bankrupt.

As with their German counterparts, Polish shipyards suffered from a drastic reduction in containership orders. The Szczecinska shipyard, despite having a fairly substantial orderbook, had to declare bankruptcy since it could no longer meet its financial obligations. A re-capitalisation took place and activity continues under the name of Szczecinska Nowa. Some of the orders placed with the old shipyard have been cancelled, other renegotiated, as with the initial order for 8 stainless steel chemical carriers for account of Odfjell-Seachem, of which 6 at least have been reconfirmed. The other big Polish shipyard, Stocznia Gdynia, won an important order for car-carriers.

The Croatian shipyards, which had managed to conclude an important volume of orders in 2001, could not offer any early delivery dates, because many existing options were exercised, and therefore did not sign this year as many contracts. Some product tankers orders were however placed for delivery in 2005. Croatia is also active in the car carriers sector.

There has been some revamping within Turkish shipbuilding, which has become specialised in small product and chemical carriers (from 3,000 to 15,000 dwt). These shipyards have been able to sell an important number of units to European operators by way of direct orders, but also by way of resales of ships ordered by Turkish interests. Some 10 shipyards are currently active in this market.

The 90's were characterised by a continuous growth in the worldwide orderbook encouraged by a continuous drop in newbuilding prices.

After the expansion of Korean production capacity in the middle of the 90's then that of China's currently, global shipbuilding capacity could expand at a rate in excess of ship demand in the years to come.

OECD estimates that today's surplus capacity is 15 % over demand and that it could reach 30 % by 2005, and they would like to see discussions which were abandoned in 1996 reactivated in an attempt to make the market healthier.

There is little chance that China will limit its ambitions and renounce at this stage what it considers its legitimate market share. Possibly in order to maintain 'reasonable' price levels, Korea and Japan will try not to transform their gain in productivity into supplementary production. But nothing can be taken for granted as the 90's showed.

It is therefore quite probable, given the chronic imbalance between supply and demand, that construction prices will continue to decline in the years to come, awaiting for the least efficient shipbuilders to give up and disappear. The world orderbook is being kept at record levels in 2002, but the gap between Europe and Asia has widened.

Despite a persistent drop in prices over time, rebounds are possible as we have seen in the years 1999-2000 or in 2002. There is a ray of hope therefore for shipbuilders.

This hope can be based on several objective criteria:

1. Safer ships are necessary.
   
   The 'Prestige' catastrophe is still in all our minds and should provoke a renewed examination in our consciences on the risks of pollution linked to maritime transportation. It is true that the catastrophe of the 'Erika' led to a renewal of the fleet and a certain rise in prices, partly linked to a favourable economic climate.
   
   Regulation should be reinforced, thus contributing to new investments, initially for oil tankers but also for dry bulk carriers since for this type of vessel double-hulls should be required.
   
   A number of charterers are already imposing more drastic constraints that those being legislated. The combination of these measures should accelerate the need for renewals.
   

2. New ship sizes and new technologies should be developed.
   
   The last ten years have seen the development of new sizes in bulk carriers and containerships.
   
   For instance the deadweight of Handysize bulk carriers has gradually gone from 35,000 to 55,000 dwt, the deadweight of Panamax from 52,000 to 75,000 dwt, and the deadweight of Capesize from 150,000 to 200,000 dwt. The capacity of containerships have also increased from 4,000 teu to over 8,000 teu.
   
   This trend is probably not finished.
   
   Needs in natural gas should favour orders of LNG carriers of very large sizes over and above the 147,000 cbm currently. Projects for LNG carriers of over 200,000 cbm are being studied. The adoption of dual diesel gas-electric propulsion on this type of ship should contribute to the replacement of the preceding generation equipped with steam turbines.
   
   Development of oil exports or of refined products from cold regions such as the Baltic, the Russian Arctic and Alaska could also provide future demand for ice-class tankers.
   

3. Maritime transportation, remains the least polluting.
   
   Despite the catastrophes which are largely covered by medias and discredit the image of maritime transportation, this means of transport is the most economic in terms of energy consumption per ton transported and therefore the most ecological.
   
   It is also the solution to alternative transport being both the most economic and the easiest to put into place, in order to resolve the ever-increasing problem of congestion of the road network in Europe but also in other heavily industrialised zones.