The ship construction for the Japanese Navy is kept underway at five to seven yards with varying construction schedules of 1 to 2 years. At least 4 to 5 yards have active destroyer building capacity and three yards have submarine building capacity. Political consideration was taken into account on the location and scheduling of ship contracts. The fit-up and welding on the naval surface ships was of the same high quality as in the commercial ships.
There were over 5,000 shipyards in Japan in the 1980s, but a large part of the shipbuilding tonnage is constructed in the shipyards of seven major shipbuilding companies. Many of the shipbuilding facilities, particularly the older yards, have other heavy construction activities in or adjacent to their facilities, such as pressure vessels, boilers, diesel engines, bridges, etc., which help maintain a constant workload. Several new yards were built in the 1969-1974 era specifically for large volume oil tankers with special features to optimize their construction, such as an automatic egg crate jig for welding the longitudinal and transverse frames to the hull plating on tankers. These new facilities had a very small workload for their very large specialized capacity. The building docks in the new shipyards are very large, ranging in size up to 3000 feet long by 300 feet wide at the Koyagi Works, which equates to a maximum shipbuilding capacity of 1,000,000 dwt. The Japanese government, in an effort to keep the larger yards with those building docks from driving smaller yards out of business, has restricted the use of these building docks.
Although market conditions have become increasingly competitive, Japan has remained among the world's largest commercial shipbuilder. Japan's share of world ship completions (by gross tonnage) rose from 22 percent in 1960 to a majority 53 percent share of world completions by 1984. Through 1994, Japan's share held relatively steady at 45 percent of the world's completions; however, according to Japan's Institute of Marine Industries (IM!), Japan's share of orders dropped to 38 percent in 1995. Korea, now considered Japan's principal competitor, increased its position substantially, rising from less than 1 percent of completions in 1975 to nearly 22 percent of completions in 1994. Also according to the IMI, Korea's position improved sharply to 32 percent of world orders in 1995. By comparison, West European yards, which build a large number of passenger vessels, but fewer container, tanker, and bu1kships than Far Eastern yards, have collectively maintained a smaller percentage of the world market.
Despite lower prices and substantial competition from Korean shipbuilders, the Japanese shipbuilding industry attempted to retain its competitive position through production rationalization and cost-cutting efforts. A shipbuilding analyst has suggested that marginal companies may be eliminated from the Japanese industry because, at 1995 exchange rates, Korean yards reportedly had an estimated 6-percent cost advantage over Japanese shipbuilders. To compensate, Japanese shipbuilders attempted to improve productivity and lower costs by importing more production equipment at reduced prices, by using series production techniques, and by improving manufacturing processes. Japan had hoped to maintain its superior position with respect to Korea by winning orders for vessels on the basis of better technology and better on-time delivery records. In addition, country consortia began to play a role in capturing competitive vessel contracts.
The Japanese shipbuilding industry, following a period of relatively sustained growth during the 1950s and 196Os, faced a rather abrupt change in fortune as a result of the 1973-74 oil crisis. Unlike the textile industry, which has experienced a slower, steadier erosion of comparative advantage over a period of years, the shipbuilding industry was forced to adjust to a drastic worldwide drop in demand for ships, notably tankers. The Japanese industry was by then launching roughly 50 percent of the world's new shipping tonnage, so it was particularly hard hit. The Japanese Government employed a series of measures to enable the industry to adapt to these changed economic circumstances. A scrapping program was instituted to reduce shipbuilding capacity; shipbuilders agreed to temporary production cutbacks; and the government helped to generate demand for new vessels. The industry rationalization program achieved some success in enabling the industry to scale back production in the face of a shrinking world market.
The Japanese shipbuilding industry was forced in FY 1979 and again in FY 1987 to reduce significantly its production capacity primarily as the result of the two oil shocks of 1973 and 1978, excess worldwide shipbuilding capacity, and the longevity of vessels built during the 1960s and 1970s. The number of shipbuilding companies capable of building a 5,000 gt ship or larger was reduced from 44 to 26, and the number of dry docks declined from 21 to 8 during this period. Japan reached its highest level in available shipbuilding capacity at 9.0 million cgt in 1975. By 1990 available capacity was reduced to 5.5 million cgt, or by 39 percent. Japan's shipyard and subcontractor workforce stood at 361,000 as of December 31, 1974. It declined by nearly 65 percent, to 126,000 as of December 31, 1990. The Japanese shipyard workforce at yearend 1990 comprised 55,000 workers involved in shipbuilding, 34,000 subcontractors, and 37,000 workers in related industries.9 Japan utilizes subcontractors as a means to expand more easily and to contract its shipbuilding capability according to the demand of the global market. The use of subcontractors has been cited by the U.S. shipbuilding industry as a competitive advantage enjoyed by the Japanese shipyards, and it is a factor overlooked in comparisons of productivity between Japan and other world shipbuilders.
Japan dominated world shipbuilding in the late 1980s, filling more than half of all orders worldwide. Its closest competitors were South Korea and Spain, with 9 percent and 5.2 percent of the market, respectively. Japan's shipyards replaced their West European competitors as world leaders in production through advanced design, fast delivery, and low production costs. The Japanese shipbuilding industry was hit by a lengthy recession from the late 1970s through most of the 1980s, which resulted in a drastic cutback in the use of facilities and in the work force, but there was a sharp revival in 1989. The industry was helped by a sudden rise in demand from other countries that needed to replace their aging fleets and from a sudden decline in the South Korean shipping industry. In 1988 Japanese shipbuilding firms received orders for 4.8 million gross tons of ships, but this figure grew to 7.1 million gross tons in 1989.
It is hard to think of an industry harder pressed to cut costs than shipbuilding, an industry dependent on exports for 60 percent of its sales, and competing with Korea, whose costs were as much as 25 percent below Japan's by the mid-1990s. The price differential to ship builders between Korean and Japanese steel was roughly unchanged from 1987 to 1994, with Japanese firms paying 40 percent more for steel than their Korean competitors. In 1994 the cost of Japanese steel alone put Japanese shipbuilders at an eight million dollar cost disadvantace per oil tanker. The reason steel users paid high prices for Japanese steel and resisted switching to imports is partly that they were committed to commitments to firms but also that they chose to honor a larger commitment to support the entire domestic steel industry. Prices were supported by the steel industry cartel, but they were also supported by buyers’ willingness to pay what it costs to keep the domestic steel industry going.
It did not appear that the price gap between domestic and international prices was due to quality differences between Japanese and foreign steel. Fine gradations of quality are not important for the ordinary grade steel used in construction, which accounted for half of all Japanese steel dermand in the 1990s. One Japanese scholar argued that it was only in 1993 and 1994 that import steel prices had genuinely become attractive to shipbuilders, given the lower quality, lack of fine size gradations, and less convenient delivery of foreign steel. However, 75 percent of the steel shipbuilders used was thick plate, a basically standardized commodity. The steel from Korea's Pohang steel plant was essentially the same as Japanese steel since it was made with equipment supplied by Mitsubishi Heavy Industries.
It is true that Japanese steel makers produced steel plate in some four hundred different sizes for their various customers, and that the shipbuilders valued this. By 1994, however, the shipbuilders were begging the steel companies to standardize these sizes but to give them some price relief in return. Though the large number of sizes was supposed to simplify shipbuilding, some argued that fewer sizes would actually increase shipbuilders’ efficiency and save them more money in building costs than the steel companies would save by standardizing sizes.66 If this is true, it suggests that the proliferation of sizes in the steel market has acted more as a barrier to imports than as a genuine contribution to production efficiency.
People often say ‘Steel is the state’ (tetsu wa kokka nari), or ‘Steel is the rice of industry.’ For most of the major shipbuilders, such as Mitsubishi Heavy Industries, Ishikawajima Harima, or Sumitomo Heavy Industries, shipbuilding is only a small part of their larger operations in industrial machine production. The retaliatory power of the steel companies vis-á-vis these firms is to cut off purchases of new manufacturing equipment or to tell the shipping companies which handle their raw materials imports and steel exports to stop buying ships from particular firms.
|Join the GlobalSecurity.org mailing list|