Philippines Shipbuilding Industry

The Philippines overtook European countries and became the world’s fourth largest shipbuilding nation in 2010, following South Korea, China and Japan, in terms of newbuilding completion volume. This was attributable to the expanded construction volume of the local Philippine shipyards. The major shipyards in the Philippines are Japan’s Tsuneishi Heavy industries (Cebu) Inc. (THICI) in Balamban, Cebu operated by Tsuneishi Holding Corp. and South Korea’s Hanjin Heavy Industries and Construction (HHIC Philippines established by HHIC at Subic Bay.

In the five years since 2005, the emerging shipbuilding nations, like India, Vietnam, Philippines and Brazil, acquired a dominant position posing as potential threat as well as opportunity for the existing shipbuilding nations. Philippine shipyards are building more ships of larger tonnage capacities like bulk carriers, container ships and big passenger ferries. The construction at the Subic Bay Freeport of a $68 million Turkish-owned commercial ship by Hanjin Heavy Industries Corporation, a South Korean shipbuilding giant, shows that the Philippines can really build world-class ocean-going vessels.

The Philippines manifested a unique presence in the market as a production base of shipyards from developed countries. According to IHS Fairplay statistics (formerly Lloyd’s Register), 19 newbuildings of 710,000 gross registered tons (GRT) were completed in the Philippines from January to June 2010 alone. As for the major shipbuilding countries in Europe, Germany completed 490,000 GRT, while Italy and Romania completed 470,000 GRT and 320,000 GRT respectively. Newbuilding completions in Taiwan, Vietnam and Turkey also shrank, driving the Philippines to surpass these countries. South Korea, Japan and China will remain the three shipbuilding giants in the industry.

The shipbuilding industry refers to the sector involved in the construction, launching, and outfitting of watercrafts, while the ship repair industry deals with the overhaul, improvement, alteration, and reconditioning of water vessels. The Philippines now ranks No. 4 among the largest shipbuilding nations in the world. South Korea, China and Japan, are first, second and third largest shipbuilding nations worldwide. The arrival of foreign shipbuilders in the Philippines propelled the export growth of Philippine-made ships in the international market.

The First Philippine shipbuilding industry development program, a program for progressive ship manufacture drydocking and repair of ships and manufacture of ship components, was prepared by the Philippine Shipbuilders Association and the Private Development Corporation of the Philippines in 1975. The MARINA was created on 01 June 1974 with the issuance of PD 474 and started functioning as an agency attached to the office of the President (OP) on 29 August 1979 with the issuance of PD 761 mandating the agency to integrate the development, promotion and regulation of the country’s maritime industry. In 1979, MARINA, pursuant to EO 546 dated 23 July 1979, was made an attached agency of the Ministry of Transportation and Communications (MOTC) for policy and program coordination.

As recently as the mid-1990s, while demand for repair jobs was more than adequate, demand conditions facing domestic shipbuilders and boat manufacturers prevented them from exploiting the potential economies of scale from ship or boat construction. The limited domestic demand for ships generally arose from domestic shipping policies which favored ship importation rather than domestic production and the existence of alternative markets of ships. Furthermore, the geographic location of the country also determines the activities of the shipyards with countries situated in areas of growing trade and commerce experiencing greater traffic of water vesselsand thus, more shipbuilding or repair activities. As for the boatyards, their products are designed to cater to certain segments of the market which require special marketing activities.

In 1992 the Philippine SB/SR industry was comprised of 152 firms. Technological capabilities were limited to constructing vessels below the 5,000 dwt range while repair capacities reached up to the 10,000 dwt to 300,000 dwt range. Seven shipyards accounted for approximately 82 percent of the overall capacity of 570,153 dwt, while only 32 firms (or 21 percent of all firms) had drydocking facilities. A significant component of the subsector was the Ship Repair Afloat (SRA), composed of 57 small enterprises, which provided mainly manpower services to shipping lines and to shipbuilders and repairers. During the 1985 to 1992 period, there was a general increase in the number of Marina-licensed firms involved in ship repair, combined shipbuilding and ship repair and shipbuilding operations.

In the 1990s the large shipyards in the country were mainly joint ventures with foreign nationals.The largest shipyard,Subic Shipyard & Engineering, Inc., formerly PHILSECO, was owned by a consortium of Philippine enterprises and some Japanese and Singaporean multinationals, while three other large shipyards were subsidiaries of a Singaporean company. Some of the medium- and small-sized firms were owned by local shipping companies which used them to service their own shipping vessels.

The country’s ship building and ship repair sector provides vital support and complementation for the country’s maritime transport/shipping sector, which in turn serves as the lifeline and linkage for the movement of cargoes, products and people between and among the island-economies of the archipelagic environment. The safety and efficiency of domestic ships primarily depends on the availability, capability and capacity of our ship repair industry to maintain their seaworthiness, especially for repairs and during a ship’s drydocking. Considering the age profile of most second-hand domestic ships, their repair and maintenance are basically dependent on the country’s ship repair sector, in order to comply with safety standards and requirements.On the other hand, domestic demands for new ships, in line with the country’s domestic shipping modernization efforts, would need to be catered to by the ship building sector.

Out of 557 licensed entities, 116 are engaged in ship building/ship repair using shipyard facilities, 234 are afloat ship repairers not having any shipyard facility, and 207 are boatbuilders. This profile alone shows that the sector is dominated by entities catering to ship repair and construction of motor bancas. Out of the 116 licensed shipyards, only ten (10) would have facilities catering to the construction and/or repair of big ships, only 15 for medium-sized ships, and the rest would only be able to service smaller ships. . Thus, the SBSR sector currently thrives primarily from the business of ship repair of the country’s domestic fleet, and sporadic ship building projects limited to small ships and motor bancas, except those from Tsuneishi Heavy Industries Inc. and FBMA Marine Inc. which cater to the export market.

Foremost and critically pivotal was the inability of the country’s SBSR sector to effectively compete with neighboring foreign shipyards (i.e., Japan, Korea, Singapore, China, etc.) in catering to both national and international demands/ requirements for newbuildings and ship repair projects. There was a prevailing preference to neighboring shipyards for ship building and ship repair projects due to cheaper costs, greater efficiency thereby reducing construction or drydocking time and more extensive experience in undertaking such activities. The local shipbuilding projects undertaken for domestic demands were limited to small ships.

A latent strength of the sector which still needs to be fully taken advantage of is the country’s strategic location to the shipping routes of oceangoing ships serving the Asia-Pacific region. Such strategic location could be translated into the country becoming a hub for ship repair and drydocking of oceangoing ships, including fishing vessels operating in international waters. For this latent strength to be realized, the country’s shipyards would need to be capable and competitive with neighboring foreign shipyards, in servicing the drydocking/repair requirements of oceangoing ships.

A more concrete strength of the sector is the readily available cheap and easily trainable technical and skilled manpower for shipbuilding and ship repair works in the country. Many Filipino workers have inherent skills for shipyard-related jobs like welding, pipe fitting, molding, etc., including technical/engineering competence. With comprehensive training programs, a pool of skilled shipyard manpower would easily become a basic asset of the sector, not only for local shipyard requirements but also for foreign-based shipyards.

Another strength currently favoring the sector is the support being provided by the government for shipyard operations in terms of exemptions from import duties and taxes, income tax holidays, accelerated asset depreciation, etc. under R.A. No. 9295 and the Investments Priorities Plan (IPP), all geared towards stimulating investments and attracting more players both locally and from abroad, as well as helping the sector become more competitive with their foreign counterparts.

On 08 December 2006, President Gloria Macapagal Arroyo signed Executive Order No. 588 entitled “Strengthening The Philippine Ship Building and Ship Repair Sector and Instituting Measures To Promote Its Growth and Development”. Pursuant to Sec. 4 of such E.O., an Ad Hoc Committee was established, with the mandate of formulating a comprehensive development plan for the shipbuilding and ship repair sector of the country. The strengths of the sector would be highlighted in attracting foreign shipyards to come in, or promote the country as an investment area for ship building and ship repair operations. The Comprehensive Development Plan for the Philippine Ship Building and Ship Repair Sector was finalized and adopted by the Ad Hoc Committee on 16 October 2007 for indorsement and submission to President Gloria Macapagal-Arroyo.

The arrival of foreign shipbuilders in the Philippines has introduced the country’s shipbuilding industry in the international market. Philippine shipyards are now building more ships for export than for domestic use. Majority of these ships are of large tonnage capacities like bulk carriers, container ships and big passenger ferries. By 2009 the export market, which is dominated by three foreign shipbuilders, accounted for more than 98% of the total turnover and the number was expected to further increase.

The 54,000-hectare business hub in Port Irene at the Cagayan Economic Zone Authority (CEZA) is being primed to be the country’s next world-class shipyard; it has been upgraded including the lengthening of the pier to accommodate 20,000 deadweight-ton vessels. Two notable Filipino-owned shipbuilding companies are Herma Shipyard, Inc., which has gone into double hull petroleum tanker shipbuilding, and Colorado Shipyard Corporation, which can build medium to large cargo ships. The Tsuneishi Cebu shipyard, operated by Japan’s Tsuneishi Holdings Corp., in partnership with Cebu’s Aboitiz Group had produced about 77 ships by the end of 2007. Starting in 1997 with the 23,407-DWT M/V Sea Amelita, a log/bulk carrier named after then-First Lady Amelita Ramos, the company proceeded to make history in the local shipbuilding industry.

Hanjin, which started building its US$1.7 billion shipyard on a 200 hectare in Subic in early 2006, has increased the momentum of big ship production recently. Hanjin launched the first container ship to be built in the Philippines in July of 2008. The huge capacity of Hanjin’s dry dock in Subic, where four vessels can be built at a time, resulted in faster production. Keppel started operating its shipyard in the Philippines in early 1994 with a capacity of 28 vessels per year. It expanded its operation by fabricating tugboats and oil rig hull. It now operates two (2) shipyards, namely: Subic (350,000 DWT) and Batangas (50,000 DWT). It offers a complete solution in offshore rig construction, shipbuilding, ship repair and conversion, with a full range of drydocks in its three shipyards strategically located in the Philippines.

Keppel started operating its shipyard here in early 1994 with a capacity of 28 vessel per year. Now Keppel expanded its operation in the Philippines by fabricating tugboats and oil rig hull which is the current demand in the world market presently. Keppel operates three (3) shipyards in the Philippines namely – Subic (350,000 DWT), Batangas (50,000 DWT) and Cebu (35,000 DWT). Keppel offers a complete solution for your every need in offshore rig construction, shipbuilding, shiprepair and conversion, with a full range of drydocks in its three shipyards strategically located in the Philippines, which is along the main trading route in the South China Sea and Pacific Ocean. Two notable Filipino-owned shipbuilding companies are Herma Shipyard, Inc. which has recently gone into double hull petroleum tanker shipbuilding, and the Aboitiz-owned FBMA Marines, Inc. which has been building catamarans. In line with the vision of making Subic Bay the best logistics and service hub in the region, the Subic Bay Port Development Project was completed in early 2008, aiming to significantly increase the capacity of the port from 100,000 Twenty-foot Equivalent Units (TEUs) of Containers to 600,000 TEUs.