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Global Shipbuilding Industry Making Changes to Stay Afloat

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Shipbuilding Industry

Shipbuilding Industry

As the Eurozone crisis rages on, an industry that's been affected by it, although it hasn't been in the news, is the shipbuilding industry. Primarily centered in Asia, the shipbuilding industry is seeing changes in competition and in revenue sources as it continues to deal with the turmoil a continent away.

Chinese Shipyards Begin to Dominate the Shipbuilding Industry

Rising from an industry previously dominated by Korea and Japan, China has emerged as the world leader in shipbuilding due to their lower costs of materials and labor. According to London-based market researcher Clarkson Research, China is the largest shipbuilder in the world in terms of compensated gross tons of ships as of 2010, at a total of 15.9 million tons, followed by South Korea with 11.77 million compensated gross tons.

In fact, there is plenty of speculation that China is preparing a series of huge ship orders, along with its growth in the shipbuilding industry itself. It was revealed yesterday that there's been a  significant order from a Chinese buyer for new crude-oil tankers. That order, along with the speculative orders, would support employment in the country’s shipbuilding industry but flood struggling shipping markets with excess capacity. China Rongsheng Heavy Industries, China’s largest privately controlled shipbuilding group by order book size, announced yesterday that it had received an order for 10 Suezmax crude oil tankers, plus options for a further 10, for delivery in 2013 and 2014.

The Bloomberg World Shipbuilding Index has fallen about 32 percent this year as orders for vessels to carry containers, commodities and oil have tumbled amid the Eurozone crisis and a slump in freight rates caused by overcapacity. It's projected that this slump will affect the Chinese shipbuilding industry more than it will affect the South Korean shipbuilding industry.

South Korea Still Strong in the Shipbuilding Industry

Despite the fact that the Eurozone Crisis is hitting South Korea's shipbuilding industry pretty hard, South Korean shipbuilding stocks may jump as much as 80 percent in four months as they catch up with gains in oil prices. The slowdown in the shipbuilding industry as a whole may affect Korean shipyards less than those in China as shipbuilders including Hyundai Heavy, Samsung Heavy and Daewoo Shipbuilding, South Korea’s three largest, have pared their reliance on these traditional markets by focusing more on energy-related products. South Korean yards may win more sales from energy products than ships for the first time next year, according to NH Investment & Securities Co.

South Korea is home to the world's biggest shipbuilders (Hyundai Heavy and Daewoo Shipbuilding), and the stock market's shipbuilding subindex has slumped 40 percent over the past six months versus a 10 percent drop in the overall market. Perhaps a diversification in revenue sources, which it seems that these shipbuilding industry leaders are doing, may be what keeps the shipbuilding industry in South Korea afloat.

How's the Shipbuilding Industry in Europe Holding Up?

The shipbuilding industry in Europe is doing its best to keep up with the global competition. The Baltic Exchange's main sea freight index, which tracks rates to ship dry commodities, has so far fallen 14 percent over the past year. This week, the European Union unveiled new rules for assessing aid to the bloc's shipbuilding industry, hailing the reform as intended to help foster innovation. These new rules will go into affect at the beginning of 2012. Europe's shipbuilding industry includes over 300 shipyards with a combined turnover of 30 billion euros a year and employing some 500,000 people.

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