Industry Overview – what is it?
The present development of the Chinese shipbuilding industry follows a similar pattern to what had happened earlier in Japan and Korea. Japan used its shipbuilding industry in the 1950s and 1960s to rebuild its industrial capability, while Korea saw shipbuilding as a strategic core for its economic development in the 1970s. China is now also taking that development path by taking full advantage of the demand shift towards centres of low cost production, and making full use of its low cost advantage and large domestic demand to build a solid industrial foundation.
This appraisal of industry will draw on the key comparables between ...view middle of the document...
Korea’s shipbuilding industry had a hard time with the financial crunch and decreased orders. Meanwhile, the Chinese shipbuilding industry, which had been expected to suffer due to their large new investments, was financially supported by the Chinese government.
The fact that Korea was overtaken by China in completions means that China outpaced Korea in shipbuilding capacity. China’s shipbuilding capacity increased 15.8 times from 2000 to 2010. The increase is attributed to the facts that, in addition to private shipyards, three major state-run shipbuilding bases, built by China State Shipbuilding Corporation (CSSC) and China Shipbuilding Industry Corporation (CSIC), were completed and began operation.
Global demand for new shipbuilding orders plummeted, but has shown stuttering signs of recovery. Current demand is much smaller than facility capacity, which had expanded to meet surging demand during the shipbuilding boom. This means that overcapacity will become a major issue in the near future.
The below tables extracted from JP Morgan markets report 8 May 2012 are provided by Clarkson, an independent shipping research house and show new orders in China and South Korea. It is evident in both that orders peaked around 2007 and have fallen off since. China did see resurgence in 2010 to 11 however order levels have again fallen. Please note the scale on the axis as South Korea has a higher peak.
Backlogged orders from the shipbuilding boom still under construction
After 2000, the global shipbuilding market had ups and downs before reaching its peak in 2007, and then plunging in the aftermath of the global financial crisis.
The global shipbuilding order book increased, partially due to speculation. Financially distressed ship-owners postponed delivery of the ships they had ordered in the boom years because they were unable to secure time charters. Therefore, shipbuilding periods were prolonged. For this reason, ships ordered in the boom years even now still under construction. Because of the large backlog, the global shipbuilding industry has been insulated to a potential oncoming crisis. Due to recent postponements of deliveries, there have been significant discrepancies between contracted delivery times and actual delivery times for every ship type. “Just-in-time” delivery had been an important factor in determining shipyard competitiveness.
In 2009, bulk carriers, which had a high rate of speculative orders, had a 31.8% difference between planned delivery time and actual delivery time. Container ships, which were last to recover from the decrease in global shipping volume, had a 41.6% difference.
Until the first half of 2008, excess demand in the global shipbuilding market drove up marine freight rates. At one point, second-hand vessels were more expensive than new vessels under construction. In a heated competition, major shipbuilding countries rushed to expand their...