Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Global shipbuilding: An overview - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Feb 15, 2007

    Global shipbuilding: An overview

    The global shipbuilding industry has been on an upswing over the past few years. In the period between 2000 and 2005, the world shipbuilding output has grown at a compounded annual rate of 8.3% based on gross tonnage (GT), as opposed to a growth of 4.8% achieved in the past 20 years (1985 to 2005). Strong demand and capacity constraints has led to the world's shipping order book to sales ratio increase to 3.5 times in 2005, higher than the historical average of 2.1 (between 1982-02).

    Shipyards remain fully booked in the medium-term with the delivery period, for the first time since the seventies, extending beyond three years. Since it is the waiting period, which new building prices closely follow as compared to freight rates, the strong new building prices are expected to be maintained over the medium-term. Also, the ships that have been currently booked at higher prices will have full impact on the shipbuilder's profitability in the next two to three years.

    The global shipbuilding industry is primarily dominated by conventional vessels like tankers, bulk-carriers and container vessels. As can be seen from the chart below, conventional vessels accounted for 69% of the world shipping order book at the end of 2005, followed by LNG carriers at 9%. In addition, there exist specialised categories like cruise ships that fall under 'Passenger Vessels' category and Offshore Supply Vessels (OSVs) that come under 'Other Non-cargo Vessels' category.

    Demand drivers: Being a global industry, the fortunes of the shipbuilding industry are closely tied to the growth in world trade. The demand for ships can be classified into incremental demand and replacement demand. In case of incremental demand, growth in world trade increases the demand for vessels, which in turn leads to higher freight rates. The resultant higher freight rates trigger the demand for new vessels from the shipping companies. In case of replacement demand, the demand for vessels is dependent upon the age profile of the existing fleet as well as steel prices. Every ship has a useful life (25 to 30 years) after which it becomes uneconomical to operate them. Replacement demand is triggered when ships approach the end of their useful life. Higher steel prices also decide the extent of replacement demand as they lead to an increase in value of ships to be scrapped.

    Major players in the shipbuilding countries: Global market environment in the shipping industry has undergone fundamental changes over the last two decades. For nearly three decades in the post World War II era, shipbuilding industry was dominated by Europe and the US. Shipbuilding being a labour intensive industry, the cost of labour plays an important determinant in a country's competitiveness position vis-a-vis others. With rising labour cost, shipbuilding activities have slowly moved away from 'high wage' Europe and US to low-wage Asia. Over the past 25 years, we have observed the decline of shipbuilding capacity in Europe coinciding with the growth of Japanese shipbuilding. As can be seen in the chart, the share of European Union has declined from 28% in 1983 to 7% in 2005. With the rising labour cost in the late 1980s, Japan was forced to scale down its shipbuilding activities and Korea emerged aggressively. In the past few years, China is taking away an increasingly larger market share of the new building contracts.

    The shipbuilding industry is currently dominated by the Japanese and Korean shipyards. In 2005, they together accounted for 73% of the total world output (in number terms), followed by China at 13.5% and European Union (EU) at 7%. The largest shipbuilding companies in terms of capacity are Hyundai Heavy Industries, Daewoo Shipbuilding and Marine Engineering and Samsung Heavy Industries (all Korean).

    The conventional large vessel segment like tankers, bulk carriers and container vessels is dominated by Korea, Japan and China. China's ambitions to become the world's largest shipbuilder for conventional vessels has resulted in Korea taking a back-seat in this segment and instead focus on new ship development areas like super-large LNG carriers. Japan has been struggling to maintain its market share due to dwindling workforce and higher labour cost. It is currently investing in technology to construct conventional vessels in a short period and thereby compete with China in this segment. Realising its inability to compete with Asian countries in the conventional segment, the EU shipyards have been focusing on 'Passenger Vessels' and 'Offshore Vessels' segment.

    Next article in this series will cover an analysis of the Indian ship building industry.



    Equitymaster requests your view! Post a comment on "Global shipbuilding: An overview". Click here!


    More Views on News

    G E Shipping: Feeling Pressure From the Offshore Segment (Quarterly Results Update - Detailed)

    Aug 18, 2017

    GE Shipping reported a subdued performance on the back weak offshore segment.

    G E Shipping: A Bad Quarter (Quarterly Results Update - Detailed)

    May 9, 2017

    GE shipping registered a loss in 4QFY17 due to weak global shipping market and lower crude prices which negatively impacted the offshore segment.

    G E Shipping: Crude, Product, and Offshore Segment Drag Performance (Quarterly Results Update - Detailed)

    Feb 16, 2017

    G E Shipping has reported a 22.8% YoY decline in the topline while the bottomline has declined by 33.4% YoY.

    Cochin Shipyard Limited (IPO)

    Aug 1, 2017

    Should you subscribe to the IPO of Cochin Shipyard Ltd?

    G E Shipping: Pressure from All Segments Drags Performance (Quarterly Results Update - Detailed)

    Nov 21, 2016

    G E Shipping has reported a 20.2% YoY decline in the topline while the bottomline has declined by 24% YoY.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms