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European Commercial Shipbuilding Industry

The European shipbuilding industry holds approximately 20% of the world shipbuilding capacity. Shipyards provide more than 100,000 high qualification jobs through direct employment and generate at least three times as many in the marine equipment and service industries in Europe. The annual turnover of shipyards in 2003 was 14.4 billion € in merchant shipbuilding and 2.1 billion € in shiprepairing. Exports accounts for roughly 70% of the total turnover. As key drivers of maritime excellence, European yards invest on average approx. 10% of their turnover on research, development and innovation.

As a result of streamlining coupled with pro-active outsourcing strategies and continuous innovation in production methods, a network of highly specialised companies has developed to become one of the competitive advantages of the European shipbuilding industry. Typically 60 to 75% of the value of a new ship are goods and services provided by marine equipment and service industries.

Commercial ships range from more basic vessels -- such as cargo carriers, tankers, and product carriers--to ships that are highly complex and densely outfitted and incorporate technological advances vital to improving business operations. These ships include floating production storage and offloading (FPSO) vessels, which are able to collect, process, and store oil from undersea oil fields; large cruise ships, some of which exceed the size of a Ford-class aircraft carrier; and liquefied natural gas (LNG) carriers. Each of these ship types generally takes longer to build than simpler commercial ships with construction times lasting up to 3 years. Further, these ships are very dense, meaning that unlike a bulk carrier or an oil tanker that has large, empty voids to hold cargo, these ships have equipment and accommodation spaces tightly packed throughout. Similar to the mission equipment for certain Navy ships, FPSO vessels have oil refining equipment that may be built by a separate contractor and provided to the shipyard for installation.

European shipyards, particularly those in Finland, Italy and Spain, have focused on commercial and high-tech civil ship construction including ferries, research vessels, large cruise ships and medium-sized naval vessels. Cruise ships are typically built in European shipyards. Major builders include Aker Yards (now STX Europe) in Finland and France, Meyer Werft in Germany, and Fincantieri in Italy. Together, these three yards constitute an estimated 80 percent of global cruise shipbuilding. Commercial shipbuilding primarily occurs in Asia; Korean shipyards constitute approximately 35 percent of the market, Japanese shipyards approximately 30 percent, and Chinese shipyards approximately 12 percent.

Large and complex commercial ships developed outside the United States, particularly cruise ships that carry large quantities of people, are designed, built and operated in highly competitive markets. Many cost-saving improvements in technology and process have evolved in the commercial ship industry in recent decades as a result of competitive pressures. These improvements have significantly reduced the life cycle costs and improved the quality of life on these ships. European yards have had to compete with each other for work from many customers for ships designed to very flexible standards. To maximize financial return in a competitive environment, they have organized, strategized, and planned their work in a fashion completely different from their US counterparts. In particular, the four European shipyards that build large cruise ships subcontract the majority of each ship. Each has a permanent work force of fewer than 2000 workers and yet have a steel erection throughput of about 25,000 tons per year. The result is yards that are streamlined with manageable overhead and efficient facilities.

By 2007 the international commercial shipbuilding industry was experiencing booming orders and the highest rate of new order generation since 1975. There was a shortage of capacity and in some cases owners must wait until beyond 2010 for delivery of orders placed today. This is stimulating the development of new capacity, particularly in China, India and Vietnam. High shipbuilding capacity utilization, very high earnings in the shipping markets and significant increases in raw material costs have all contributed to higher prices, which are now around 85 percenthigher than they were in 2002. The price of a Very Large Crude Carrier (VLCC), for example, has doubled from $63.5 million to $130 million and a 1,000 Twenty-foot Equivalent Unit (TEU) container ship has increased from $15.5 million to $23.5 million.

For the second year in a row, worldwide new orders grew by more than 40%. The global orderbook has doubled in tonnage terms within three years with more than 10,000 ships currently on order. Such hyper growth has attracted large scale investments all around the world with much activity in emerging shipbuilding countries as well as in well established market players. Increasing supply challenges and, in particular, shortage of skilled workforces are frequent phenomena at shipyards around the world. Prices of basic materials and equipment have more than doubled within less than four years, and clients began to realise that unfortunately ships’ prices will be definitely on a much higher level than in the past.

European shipyards are concentrating on the niches of ship types which can uniquely be built with European infrastructure of thousands suppliers and subcontractors, keeping many small and medium enterprises well occupied.

Naval shipbuilding represents a significant share of the European Shipbuilding community as a whole in terms of turnover, applied technology and employment. Its products are worldwide recognised as first class both in terms of quality and price. For the majority of the naval shipyards, the home market is still the prime source of income. However, with a structural decrease in defence spending on naval hardware, export is becoming more and more important to maintain critical mass and to provide the necessary continuity. The European naval shipyards reacted timely to the shift in global naval threat from anti-air and anti-surface warfare to expeditionary warfare and ocean patrol. Especially in the last category, a number of innovative designs (corvettes and/or light frigates) found their way to non-European customers and proved the capability and competitiveness of the sector.

Given the nature of the product, the “Directions” of the Commission with regard to the more limited use of Art. 296 of the Treaty are expected to have limited impact on the business. More concern is there where the Navies are retreating in terms of “in-house” technical expertise and the level of R&D spending. To maintain the required level of technical expertise for both the home and the export market, industry will have to respond with appropriate measures. In light of these developments, the naval yards have recently decided to reactivate the CESA Naval Shipyard working group to further more tangible cooperation between the yards in areas of common political interest, common areas of operational interest such as resources of technology, design criteria and the use of commercial equipment. Other areas to be explored are common R&D issues and the availability of European Defence R&D funds.

The European Union has put maritime affairs firmly on its map. After extensive stakeholder consultation, in fact unprecedented in its scope and duration, the European Commission adopted, in October 2007, its new Integrated Maritime Policy, the so-called Blue Book. With this step, a new policy area has been introduced, launching a process with manifold opportunities for the industry. A particular focus of the Blue Book relates to the environmental performance of the maritime industries. Many challenges remain in various sectors to unsure that the maritime industries operate globally in a sustainable and clean manner.

The shipbuilding industry is internationally oriented and cyclic in nature. By 2008, more than three hundred European shipyards were experiencing the biggest shipbuilding boom over the past 40 years, with an accompanying boom in maintenance, repair and conversion work on the existing fleet. The European shipbuilding industry is a high-tech industry providing direct employment for more than 150,000 people in Europe. Since the shipbuilding industry as original equipment manufacturer has a strong focus on subcontracting, it is estimated that at least 600,000 people are employed directly and indirectly in the European industry sector.

By 2011 approximately 150 large shipyards operated in Europe with roughly 40 remaining active in the global market for large sea-going commercial vessels. Around 120 000 people are employed directly by shipyards (civilian and naval, shipbuilding and repair yards) in the European Union. Direct employment in the marine equipment sector is estimated at over 287 000 whilst indirect employment amounts to roughly 436 000. The EU shipbuilding industry was hit particularly hard by the current crisis, characterized by a complete lack of new orders, major problems in financing existing orders, overcapacity for construction of commercial vessels, irreversible job losses with further lay-offs forecast, and an ever growing number of bankruptcies and closures of shipyards and ancillary businesses. Additionally, in Poland and Romania specific circumstances contribute to a profound crisis of the industry. The situation in Poland is reflected in the current collapse of two major production shipyards in Gdynia and Szczecin.