Feb 26, 2007|
Indian Shipbuilding: An overview
In an earlier article, we provided our subscribers with an overview of the global shipbuilding industry. In this piece, we will cover the domestic shipbuilding industry and analyse as to how it compares with other shipbuilding nations.
Major players: India has around 32 shipbuilding yards belonging to the public and private sector. Major public sector yards include Mazgaon Dock, Cochin Shipyard, Hindustan Shipyard, and Goa Shipyard, while large private shipyards include ABG Shipyard, Bharati Shipyard and Adani.
The Indian shipbuilding business was traditionally dominated by inefficient PSU shipyards. Thanks to their high cost of manufacturing, poor delivery and quality standards, India could not capitalise on its low cost labour advantage. However, over the past few years, led by private shipbuilders, India has emerged as a key player in the offshore segment of shipbuilding.
How has the industry performed? The Indian shipbuilding business has entered the growth trajectory with their order-book witnessing a nine-fold increase in just four years. According to 'i-maritime', an Indian shipping consulting firm, the order-book of Indian shipyards has grown from Rs 15 bn in 2002 to Rs 137 bn in September 2006. Though India is an insignificant player in the global shipbuilding business, it has gained a strong foothold in the niche offshore segment. Led by private shipyards - ABG and Bharati - India has surpassed Norway in terms of order-book for OSVs (offshore supply vessels).
Offshore segment - Focus of Indian shipbuilders: Traditionally Singapore and Norway have been leaders in the offshore segment. However, over the past few years, India has emerged as one of the leading players in the OSV market, led by private shipyards. The success of the Indian shipbuilding industry has been due to availability of skilled labour at a lower cost. As can be seen in the table below, India compares favourably with other shipbuilding nations on the labour cost front. OSVs typically require higher degree of technological skill-set than conventional vessels like tankers, bulk carriers and container vessels. Though the cost of labour in China is lower than India, the focus of Chinese shipyards remains large conventional vessels. Moreover, large shipyards (in China) make it unfeasible to produce OSVs.
Source: Ministry of Commerce & Industry, Govt. of India
||Labour cost per worker
(US$ per annum)
Future outlook: Since the focus of Indian private shipyards is the offshore segment, their prospects primarily depend upon the exploration and production (E&P) spending by the oil companies. Worldwide, the E&P spending continues to remain strong, driven by depleting oil reserves and high oil prices. Indian shipbuilders are also set to benefit from the huge replacement demand which is expected to come over the next few years. Globally, 73% of the Anchor Handling Tug Supply Vessel (AHTSV) fleet and 62% of the Platform Supply Vessel (PSV) fleet is more than twenty years old as majority of them were acquired during the oil boom witnessed in 1970s. Despite this fact, the current order book for offshore vessels (AHTS and PSV) forms only 10% of the current fleet, thereby indicating huge potential for Indian private shipyards.
Challenges ahead: As mentioned earlier, Indian shipyards have witnessed huge accretion in order-book over the past few years. Hence, timely execution and delivery would be the key for growth. Delayed and substandard deliveries can have a detrimental impact on the long-term prospects of the domestic industry as goodwill is built over a number of years. Substantial fall in crude oil price is another area of concern, since a significant slide in oil prices would lead to a cut in E&P spending by oil majors. As a result, the demand for offshore vessels will stand reduced.
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