Italian Shipbuilding Industry

During the 1960s the shipbuilding industry undoubtedly benefitted from the orders placed with it by the naval authorities, often their only source of income. Heavy and specialized branches of industry continue to be busy with the construction of very modern mechanical. and electronic apparatus, and the experimental stations belonging to the Navy employ civilian personnel. All these factors. although immediately concerning naval operations, contribute towards keeping domestic enterprise on the move. Because of the high level of automation now required, the moderu warship has become a world in which technology reigns. As a result, more and more skilled men are required and, in this way, the Navy is helping the economic goals of the nation by training thousands of recruits who, at the conclusion of their compulsory service, have achieved a technical level that ensures them immediate acceptance by industry and other specialized sectors of the economy.

In 1982, merchant vessel construction was being performed only at Italcantieri and Cantiere Navali Breda yards, while the other yards were engaged in shiprepair activities. During that year, the Italian Government announced a restructuring plan for Italy's State-owned shipbuilding group, Fincantieri. According to the plan, Fincantieri would be reorganized into one company with a central headquarters and four operating divisions. Employment would be reduced and output was to be limited to 190,000 metric tons. Investments of $125 million over three years were to cover the restructuring process. Direct aid would be provided for newbuilding and conversions and similar assistance would be provided to repairers. It was hoped that guaranteed production prices would insulate shipbuilders from the world shipbuilding recession. At the end of October 1983, Fincantieri went ahead with the first stages of the plan and laid off 3,500 workers.

In 1984, the Government announced it would implement another restructuring project. The seven largest State-owned shipyards and the largest Italian marine and industrial engine manufacturer will be merged to form a new company, Fincantieri-Contieri Navali Italiana. A Merchant Shipbuilding Division will be based in Trieste, and a Naval Ships Division would be located in Genoa, along with a Shiprepair Division.

In spite of the negative outlook for new building in Italy, the ship repair sector had managed to attract some sophisticated conversion work and offshore business requiring specialized worker skills. Even though they have been able to attract a steady amount of repair business, Italian yards were generally overmanned and facing increasing price competition from neighboring countries. 1/ During 1983, Italy's shipyards did not receive a single order for a merchant ship 5,000 dwt and over in size. In 1984, Italy's yards received orders for nine vessels totaling 39,440 grt. 2/ Of this amount, 24,000 grt was for two general cargo ships for foreign export, and the remainder was for small cargo ships, or miscellaneous vessels for domestic account.

One of the most serious consequences of the long shipbuilding recession was the loss of Italian ship designers to overseas companies. Ten years ago there were 25,000 workers producing 1 million grt per year. In 1984, there were 15,000 workers engaged in shipbuilding with an orderbook of about 50,000 grt and this included a large excess of employees. 3/ Average hourly wage costs increased from Lit 12,700 in 1982 to Lit 14,900 in 1983, an increase of 17 percent. In dollar terms, however, wage costs only went from $9.35 per hour to $9.86 per hour.

In 1983, Italy completed 10 vessels for a total of 174,730 grt, of which 77 percent or 135,000 grt was for foreign account. The approximate value of ships completed during 1983 was $226 million. The total value of the orderbook at the end of 1983 was $512 million.

Domestic owners obtained loans to cover 70 percent of new ship construction, modernization, or repair with repayment made over a 15-year period at a discounted annual rate that is reviewed biannually. The Government offered an interest rate subsidy of 2.75 percent for new construction and conversion projects. A more limited facility is provided for the purchase abroad of secondhand vessels less than 10 years old, provided they do not exceed 10,000 grt. For secondhand tonnage acquisition, the interest rate subsidy was fixed at 1.88 percent and is paid to the owners biannually over 10 years. The subsidy was limited to vessels under 10,000 grt and less than 10 years old. Owners who scrap vessels and contract to build new tonnage, amounting to at least 50 percent of the scrapped vessel's tonnage, obtained a subsidy of up to Lit 50,000-100,000 for each gross ton scrapped, depending on the age of the older ships. This program expired in December 1983.

Operating subsidies had been granted since 1974 to the State-owned FINMARE group of 17 shipping lines when new services or the maintenance of old ones are required by the national economy. These included mainland-islands service required by the State. 1/ The Government also provides production aids that are set at rates of 26 percent of the contract price for large yards and 8.5 percent of the contract price for small yards in 1983. The 1982-83 budget allocation for this purpose was Lit 990 billion.

In 1982, the Government provided investment aid of Lit 14 billion on 10 percent of investment for programs that reduce capacity. Aid is available for repair, conversion, and modification projects valued at more than $52,600. The subsidy declines with the size of the yard, starting at 10 percent of the contract price. Yards considering restructuring were granted a 20 percent subsidy, provided the restructuring costs exceed a certain level. The Government also had a price guarantee program by which it paid between 5 and 15 percent of the cost overrun between order and delivery. The premium was within the range of 0.1 to 1.25 percent of the cost of the ship. This scheme applied only to exports. Customs duties were waived on material and equipment imported for shipbuilding, conversion, and repair of ships. All ships were exempt from the VAT.

By the year 1980, ninety percent of the Italian shipbuilding industry was nationalized and controlled by FINCANTIERI. This represented the biggest shipbuilding and shiprepairing organization within the area of the Mediterranean sea.

By 1985 the prospects for Italy's shipbuilding industry were bleak. Italy's shipbuilding industry faced many problems including huge overcapacity, a very low orderbook and extremely high shipping costs. These troubles were exacerbated by already high levels of unemployment in the South of Italy and the worldwide newbuilding recession.

By 2010, while on the one hand the importance of the Italian shipbuilding industry had increased in Europe and its role as the principle player in the cruise ship sector (the only market in shipping which is based on "healthy" foundations) has been strengthened, on the other hand the huge drop in orders for tonnage gained in recent years and the amount which can be reasonably expected to be gained in the months to come led to serious difficulties for the production system. Accordingly it beaome even more pressing in Italy to launch a plan of orders from the state to fill the ever larger gaps in shipyard workloads and a system of support to research and innovation, such as structural support to defending the technological leadership gained by the industry. Likewise, it was essential that financial and insurance instruments be aligned to the instruments which have been in force for some time now in other European nations, Italy's main competitors in export markets.

In the naval shipbuilding sector the transfer of technologies and know-how abroad, as for example the construction of naval vessels in the foreign ordering nation - which was now virtually a sine qua non - required Italian companies to review in depth their approach to export markets. It is in this perspective that Fincantieri entered the huge market of the US defence industry. It was not a question of relocating but rather of initiatives which take advantage of opportunities, i.e. demand which can only be satisfied by producing in loco. Increasingly frequently these opportunities arise in the wake of agreements at government level and require expertise and competences such as to mobilize the whole "nation system".