Shipbuilding : An important economic activity
The global shipbuilding industry was estimated to value an astounding US$100 billion, according to a Bloomberg report dated December 2006.
This should not come as a surprise considering that an estimated 80 percent of the world's trade (by volume) is carried in whole or in part by seaborne transport (UNCTAD, 2009).
In addition, vessels of all kinds ply the world's waterways to undertake and facilitate a stunning array of activities. These include the transportation of cargos, dredging, search and rescue, environmental clean-up, oil and gas exploration and production, cable and pipe-laying, scientific research, fisheries, project construction, tourism, naval warfare and patrols, among many others.
Shipbuilding is a crucial activity that provides equilibrium between the demand and supply in the merchant shipping sector. When demand for a particular type of cargo is high, the demand for the ship carrying that cargo will rise in correspondence. Owners and operators of vessels in that trade will place orders at shipyards specialising in building that type of ship, and shipyards will crank up production to build those ships.
Given the demand-derived nature of shipping, it can be said that it presents a fair representation of the state of health of the global economy and trade.
On the same account, the shipbuilding industry also provides a similarly reliable testimony to the global economic and trade performance. There is indeed a strong and direct correlation between the performance of shipbuilding and the global economy and trade. Shipbuilding activities rise when global trade and economy grow. Likewise, shipbuilding will be among the first activities to suffer when trade slumps and the economy stutters. This puts shipbuilding at the forefront of one of the world's key and most important economic activities, and a reliable barometer of economic performance.
The shift to the east
Prior to the emergence of Korean and Japanese shipyards after World War II, European yards dominated the world shipbuilding industry. Post-war, the world's biggest ships were built in yards in Newcastle (England) and on the Clyde (Scotland).
While shipbuilding still exists in Europe, yards there are focusing more on the so-called Lexus-class vessels such as chemical tankers, offshore support vessels (OSVs), seismic vessels and warships and cruise ships.
For example, BAE in England specialises in building naval ships, while Aker Yards (now STX Europe) in Norway focuses on building cruise and ice-class ships plus a variety of OSVs.
During the height of the newbuilding frenzy prior to the current global economic downturn, there was an upsurge in demand for berths in European yards which had previously lost out to Asian yards.
This was a result of the spillover from Asian yards which could not cope with tremendous global demand for new tonnage. European yards have conceded that they could not compete with the low labour and land costs and economies of scale that yards in Asia enjoy, but the former still commands a reasonable percentage of the world orderbook of more technically sophisticated vessels.
A noticeable trend in global shipbuilding in the last two decades or so is the emergence of yards in developing nations.
China has emerged as a serious player in certain sectors such as in bulk, gas and container. The emergence of yards in India, Vietnam and Malaysia focusing on small and medium-sized vessels and even catering for the export markets has also been noticeable They enjoy healthy orderbooks and even produce for export markets.
Some have even benefited from alliances with more established international shipbuilders who offer better technologies and processes that have helped improved the former's productivity, efficiency and product/service offerings.
As a result of the shipbuilding boom in developing countries, investments from established foreign yards have poured in. For example, STX has invested significantly in its yards in Malaysia, the Philippines, Indonesia and Vietnam.
This provides testimony to the growing attraction of the shipbuilding sector in developing nations which enjoy low cost of production, growing demand for shipping services and economies of scale.
More shipping companies are buying into shipyards to control their supply chain better and to create synergy. One such example is MISC's purchase of MMHE, Malaysia's biggest yard, to align the energy carrier's business with the yards' capacity in building offshore structures and vessels to serve the offshore oil and gas industry.
The big gets bigger
Another unmistakable trend is the increased order for bigger and more sophisticated vessels. The pursuit of economies of scale has driven owners to order bigger ships to capitalise on booming global seaborne trade.
Bigger volume of cargos transported leads to lower cost per unit to transport them, leading to a virtuous cycle all around for the various parties along the maritime supply chain.
In the container sector, ships with larger capacity are continuously being built. Several 11,000 plus TEU vessels are already in operation, while orders have been placed for 14,000TEU vessels. A 16,000TEU behemoth is already on the design board at Samsung, one of Korea's and the world's top yards.
Shipping analysts have even visualised the construction of an ultra large container vessel with an astounding capacity of 22,000TEU as technically possible.
In the tanker trade, the biggest ULCC is a whopping 550,000DWT behemoth. Amazingly, vessels of this capacity require only a small number of crew to man. A typical gas tanker in the Aframax class (oil tanker smaller than 120,000DWT and with a breadth above 32.3 metres) merely requires a crew of 15 to sail, thanks to its advanced ship features and sophisticated onboard electronics and equipment.
In the passenger ship category, the construction of giant cruise ships that can carry passengers has been planned.
Royal Caribbean International has ordered from STX Europe, a passenger ship that can accommodate 6,400 passengers, the largest in the world to date. If that is not impressive enough, another giant cruise ship, 'Princess Kaguya' that can carry 8,400 passengers has been conceptualised by Japan Contents Network.
Green and clean
New generation of OSVs powered by gas and equipped with Dynamic Positioning capabilities and tremendous bollard pull have been built to be deployed at harsh deepwater sites. ROVs with state of the art technologies have also being built to assist in offshore oil and gas exploration and production. Then there are also FSO, FPSO and FLNG that incorporate ingenuous design and impressive features that can fit onto limited space on board. In addition to vessels, yards are also building all types of offshore structures including rigs, platforms, topsides, jackets and drills to be deployed in offshore sites.
There is also a growing trend to build eco-friendly ships in line with rising awareness to reduce green house gas emissions from vessels. Shipyards are also giving greater focus on "green logistics" to reduce wastage and pollution along their supply chain. With the growing emphasis on green shipping, shipyards are expected to step to the plate and work closely with shipowners and equipment manufacturers to come up with energy-efficient ships.
Shipbuilding makes the world go round
Trends in shipbuilding reflect the production, consumption and transportation patterns of the cargos that ships carry, and the dynamics of the activities and markets they serve.
Observing these trends provide a fascinating glimpse into the dynamics of trade, economies, industries, technologies, financing and many other aspects of life.
As an economic activity, shipbuilding has a far reaching impact on shipping, trade and the economy.
The number and size of ships built at shipyards dictate the supply of tonnage for a particular type of shipping trade, hence influence freight and charter rates of those ships. This eventually becomes a determining factor in the prices of those cargos and of other goods and services whose production depends on those cargoe s.
This underscores the immense importance of shipbuilding and its pivotal role in facilitating trade and economic activities. Shipbuilding is truly a bellwether activity that provides rich indicators of various trends of a world in flux.