Study on Competitiveness of the EU Shipbuilding Industry – key findings

High Level Meeting – LeaderSHIP 2015Bremerhaven, 11 September 2009

Contents

• Trends and developments• Key findings on the competitive position

Trends and developments

• In the last four decades Europe’s position as dominant shipbuilding region has gradually eroded

• Dominance is now claimed by China and Korea• With new low cost entrants emerging (Vietnam,

India, Phillippines)

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Demand is cyclical

• Shipbuilding is a typical cyclical industry:– Periods of high demand are followed by rapid expansion of

capacity– When demand (e.g. trade) slows down overcapacity results (e.g.

70s)– Even before current crisis shipbuilding could be expected to enter

a next down cycle:• Huge order intake in last years (50% of current fleet to be replaced

in next 3 years) + a rapid increase of production capacity

Competitive position Europe - SWOT

Weaknesses

Opportunities Threats

Strengths

• Level of innovation• Innovative SMEs and strong position of

marine equipment industry• Strong linkages yards & marine equipment: • Efficiency• Specialisation in niche markets• Spillovers between defence and commercial

segments

• Cost levels (wage levels and steel prices )• Access to skilled labour• Access to finance• Potential difficulties in knowledge

protection• Fragmented government responses

• New segments, continuous innovation• Greening of shipbuilding industry• Existing transport policies (greening of

transport, increased transport quality)• Enhanced requirements regarding

shipping standards

• Demand shift from Europe to Asia• Strengthening of maritime cluster in Asia• Development of marine equipment

industry in Asia• Competitors moving up the ladder• SMEs not surviving the crisis• Competitor’s governments response to

support their industry • Access to skilled workforce • Price competition & economic crisis

Increased sophistication

• Europe’s response to low cost competition has been a move to higher value (niche) ship types:

– Cruise (99%), offshore (43%), luxury yachts (65%) of world market share– World market share Europe in production value is higher (22%) than

share in production volume (17%)– Niche segments are somewhat less sensitive to cycles than trade related

ship types.

• A parallel business strategy more standard ships is increasing cost control (outsourcing/offshoring, production efficiency)

• The role of marine equipment has increased in the production chain

– 50-80% of the product value is subcontracted

• Europe still holds a strong position in marine equipment – Between 30-40% of the world market

Strong export orientation

• Shipbuilding is highly international (both at supply and and demand side)– Europe is a dominant buyer location– 2/3 of shipbuilding production EU is exported. Export orientation

in Asia is even higher (80% or more)

– EU marine equipment has an export share of 46% (Korea 10%, Japan 25%)

Industry structure – few very large and many SMEs

• The world is dominated by large players:– Top-4 yards worldwide cover 25% of market– Top-18 yards cover 50% of market– Largest European yard stands at 38th place

• Europe is characterized by a limited number of large companies and many SMEs– The average size of EU shipbuilding companies is smaller than

China, Korea and Japan– 10% largest companies represent over 90% of turnover

Access to resources

• Labour– Labour costs of EU are high although also Korea and Japan are relatively

high– China and new entrant show low labour costs– Labour costs are less important for high value, specialised production

processes;– Shortage of labour (esp. skilled labour) is an issue in the EU aggrevated

by the ageing workforce.

• Steel prices– Steel prices in Europe are higher than Asia, although the (worldwide)

decrease in demand for steel has reduced the gap

• Finance– Access to finance is important, especially in light of the current financial

crisis

Business strategies and changes in competitive environment

• Market developments (demand)– Buyer focus may change more towards Asian companies

• Competitor developments (supply)– Increasing competition in offshore– Continous attempts to move to higher value segments– Increasing development of own (Asian) marine equipment

industry– Globalisation (overseas investments, joint ventures)