While the shipyards' production
had been trending upwards with more or less regularity during the
nineties, the actual price for newbuildings had been moving down during
the same period, with radical price reductions in 1998 resulting from
the impact of the Asian Crisis. The year 2000 experienced, for the first
time in almost ten years, a significant increase in newbuilding prices.
It is generally acknowledged that an increase in
prices for mass produced items is impossible as long as the supply is in
excess of demand. The year 2000 experienced the shift where demand for
new building exceeded supply and provided the chance to give an accurate
measure of real production capacity in the global shipbuilding industry.
On the issue of capacity there has always been a
certain level of debate, perhaps academic, on the part of Korean
builders to try and justify their development strategy of the early
nineties which saw the creation of additional drydocks in order to match
certain demand forecasts at the time, and in face of capacity reduction
efforts that were being implemented by Japanese and European Union
builders in the wake of previous collapses of newbuilding demand and
resulting financial hardship.
Part of the ambiguity now seems to be settled.
However, the question remains about whether it will ever be possible for
any of the world's active shipyards to make a good return on their
newbuilding business. In spite of significant increases, newbuilding
prices remained very low, often even lower than those prevailing before
the 1997 Asia crisis and well below those which were existing at the
beginning of the nineties when the world orderbook was not even reaching
40 million gt.
It is legitimate to try to understand why in a year
which has seen exceptional demand, it has not been possible to get
prices even higher, and one wonders if it will ever be possible to get
further increases. The formidable reaction and elasticity of Korean
construction capacity along with the Chinese one indeed offers at least
a partial explanation of the phenomena of only nominal increase in
prices in face of profound increase of demand.
Japan achieved a strong performance, obtaining about
one third of the orders with about 14 million gt (end 2000) for a year
end total orderbook of 18.1 millions gt, compared with the 1999 year end
figure of 17.4 million gt.
However, its market share contracted from 29.5 % down
to 25.5 %.
During the course of the first three quarters of
2000, Japanese shipbuilding seemed to be missing a certain dynamic
response in the face of the surging Korean industry. Japanese yards took
only about 11.5 million gt of orders as of the 3rd quarter 2000
maintaining their orderbook at the same level of 1999. Last quarter was
Japan's builders had to contend with a strong, overvalued yen in
comparison with the currencies of their main competitors. The Korean won
maintained its weak levels established during the Asian crisis and the
euro has experienced an ongoing depreciation against the US dollar from
its inception. The yen, has since September 1999 traded in a band
between 105 and 110 yen / US dollar, as opposed to the exchange rate in
excess of 120 yen / US dollar since the beginning of 1997.
As Japanese shipbuilders had focussed a large part of
their production towards the dry bulk sector, they met with considerable
success in 1999 and the first part of 2000, during which period demand
was strong, especially in Handysize and HandyMax sizes. Japan was not
however able to take advantage in 2000 of the full rebound in demand for
tankers and containerships newbuildings.
In the fourth quarter of 2000, when it seemed as if
the Japanese yen would not be able to recover, Korean yards became
saturated and were unable to offer the earlier deliveries that buyers
required. Japan's earlier deliveries and rising US dollar prices for
newbuildings created a new attraction and the large and medium-sized
Japanese shipyards were successfully able to take as many orders as
their Korean counterparts. However, small Japanese yards, whose
clientele consists mainly of domestic shipowners, are still experiencing
difficulties in filling up their berths taking into account the
tightness of the funding market in Japan.
It is interesting to note that a certain geographical
specialisation has progressively taken place. The question is to know if
this specialisation is voluntary or forced.
Japanese shipyards have seen their market share for
tankers declining from 46 % in September 1998 to 38 % in 1999 down to 21
% in 2000.
For containerships, figures for the same period
represent a decline from 25 % to 12 % finishing at 8 %. Korea by
comparison had 31 % in 1998 and finished year 2000 with 63 %. These
losses of market share have added equally to financial difficulties. The
decline of newbuilding prices combined with the influence of the strong
yen had a hard impact on the financial performance of the major ship
exporters in Japan who all reported losses in their results announced
for the first six months of fiscal 2000 with the exception of Hitachi
and NKK which however had posted losses in 1999.
But Japanese yards nonetheless persisted in their
efforts to improve their competitive performance. Mitsubishi H.I. and
Sumitomo have announced new plans for workforce reductions. Mitsubishi
has also decided to specialise its four production sites.
Japanese shipbuilders are also well aware of the need
to further integrate their production scale on a nation-wide basis in
the face of the competition from the giants of Korea.
In April of 1999, the Japanese central government
established a commission to consider the future of shipbuilding in
Japan. Their report, published in August 1999, made specific
recommendations on the need for shipyard specialisation, combined with a
reduction and rationalisation of production into three or four major
groups instead of the seven existing today.
Since the publication of the commission's report,
discussion has effectively started with regrouping of Kawasaki - Mitsui
- IHI as one group, NKK - Hitachi as another, while Mitsubishi and
Sumitomo are expected to remain alone. However until now, no concrete
arrangements have yet been made. It seems as if the principal difficulty
rests in the structure of the large industrial groups. They have to
de-consolidate their activities in the shipbuilding sector before being
able to achieve the regroupings now under consideration. Kawasaki H.I.
has at least announced that they will spin off the shipbuilding division
as a stand alone company during 2001.
Japan could thus proceed with regrouping their
construction sites, closing some docks, reopening others which have been
de-activated in response to the two previous crisis periods in the
shipbuilding industry, experienced in the seventies and the eighties in
order to compensate the closures of those affected yards and to increase
the production and productivity of the new yards.
The Japanese Shipbuilders Association has predicted
that the demand for newbuilding could decline in the next few years and
this could accelerate the trend towards the regrouping of the Japanese
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