Shipbuilding and Repair

SIC 3731

NAICS 336611

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.

INDUSTRY SNAPSHOT

In the mid-2000s, Asian shipbuilders remained the clear leaders in the shipbuilding and repair industry, with South Korea, Japan, and China holding rank as the top three, respectively. European and U.S. yards 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. Consequentially, maintenance dollars were being moved to operating accounts. Large steel jobs were being sent overseas.

Additional concerns were apparent when the Metal Trades Department of the AFL-CIO sued the Coast Guard about allowing domestic shipyards to use pre-assembled foreign ship parts and engines. This suit claimed that the Coast Guard ignored Jones Act requirements that ships moving between U.S. ports be built in the U.S.

Momentum was evident for the concept of a "Green Passport" for ships. The passport would contain an inventory of all materials potentially hazardous to human health or the environment used in the construction of a ship. It would be produced by the shipyard during construction stage and passed on to the purchaser of the vessel. The document format would accommodate recording the addition of subsequent changes in equipment and materials. Successive owners of the ship would 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, in mid-2004. The IMO's budget for 2004-05 was more than US$84 million. Members contributions are based on the size of the country's merchant fleet. Top contributors to 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 assembly, the IMO's governing body, which is made up of representatives from the 164 governments. The assembly typically meets every two years.

CURRENT CONDITIONS

Shipbuilding emphasis has shifted eastward in the past three decades. Western Europe's shipbuilders have lost market share, first to Japan, then to South Korea, and, more recently, to China. Losing the ability to compete on pricing, European yards were forced to specialize and focus on gas and chemical tankers and cruise ships. In 2001, the European Commission, the agency that regulates competition in the European Union (EU), asked for support for European subsidies from the EU's General Affairs Council to bring the EU 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, and the United States opted not to participate in the agreement.

By 2002, tensions between the EU and South Korea were rising, as the EU accused its Asian competitor of price dumping, which is pricing a vessel at less than fair market rate in order to undercut other shipyards. When negotiations between the two world players broke down, the EU filed a complaint with the World Trade Organization (WTO) in October 2002. According to the EU, by selling ships below production cost, South Korea was destroying Europe's shipbuilding industry, causing layoffs and bankruptcies. Nevertheless, some industry observers argued that the EU's maritime status was improving, and that its claims were somewhat misleading because 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 container ships had declined.

By the mid-2000s, Asian shipyards continued to produce the bulk of the world's large commercial vessels—tankers and bulk carriers. Indeed, three Asian countries—South Korea, Japan, and China—dominate the commercial shipbuilding market. 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 ordered (cgt) 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.

The government in Malaysia vowed to strengthen the capacity and capability of shipbuilding and ship repair sector in the country 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 set as enhancing domestic capabilities in building and repairing capabilities 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, ferries, and container ships. Lagging far behind in this sector with a paltry share of the world market, 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, Newport News Shipbuilding Inc., of Virginia, 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...

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