The balance of activity for 2020, according to official sources of the Spanish government, through its shipbuilding newsletters, reported that at the end of the year, the Spanish shipbuilding sector enjoyed remarkable results, with 44 newbuilding vessels consisting of 30 merchant ships and 14 fishing vessels. When compared to the 45 newbuild vessels of the previous year, there appears to be practically no difference in output despite the challenges caused by the Covid-19 pandemic.
In terms of combined gross tonnage (CGT), the order book decreased by six per cent, from 376,580 GT to 355,751 GT in 2020. In terms of new contracts for Spanish shipyards, there were 18 in 2020 (11 merchant ships and seven fishing vessels), 7 units less than in 2019. Analysing the CGT, the decrease was much more significant, with 25 per cent less than in the previous year.
Spanish shipyards can be considered as pure exporters as evidenced by some regions such as Galicia, wherein up to 90 per cent of newbuilding projects are for overseas customers. This is something that has not changed with the current situation. Also, the units produced mainly for the foreign market rarely belong to a series. i.e. each one is often a one-off vessel adapted to the specific needs of a shipowner. There are, however, exceptions particularly in contracts for ships for foreign navies where it is quite common to build more than one ship of the same series.
These vessels incorporate the latest technological advances and all the know-how of one of the most experienced shipbuilding industries in Europe, with special emphasis on fishing, oceanographic and research vessels, offshore support vessels, sailing training ships, etc. There are many concrete examples that could be cited, among others: the sailing ship Bima Suci, delivered to the Indonesian Navy, a training ship of 111 metres in length, one of the largest in the world; or more recently the luxury cruise ship Sea Cloud Spirit, the second largest sailing cruise ship in the world, measuring 136 metres in length.
In terms of military construction, two units have been delivered to the Royal Australian Navy in recent months, the latest being the auxiliary oiler replenishment (AOR) ship HMAS Stalwart. In addition, there is the submarine S-81/Isaac Peral for the Spanish Navy, the first of the four in the S-80 series, which was launched into the water recently to begin navigation tests. It will serve as an escort for the navy’s F110 frigates that will be built in the coming years.
The Spanish shipbuilding sector at a glance
With regard to the type of construction, we can see that the sector has consolidated and has extended its offerings in recent years to different sectors of activity. We are talking about unique constructions i.e. not serialised in the vast majority of cases. Thus, in addition to the traditional specialisation in fishing vessels, highly specialised vessels (oceanographic vessels, offshore vessels, patrol vessels, fire-fighting vessels, tugboats, etc.) and military vessels, all of them with a high technological load and added value in terms of engineering and equipment, as well as passenger vessels such as ferries have been added.
If in 2015 in Galicia, this new market niche (i.e. specialised vessels) represented seven per cent of the constructions, it steadily gained prominence over the years, especially in 2019, when the niche accounted for 26 per cent. This trend is currently being consolidated.
This sub-sector of activity, ferries and passengers, represents an added challenge, as the outfitting on each vessel has to be of the highest quality and high qualification. Detailed engineering, electronic and electrical engineering, surface treatments, and everything related to the accommodation of the vessel require highly qualified and experienced personnel, as well as highly advanced equipment, processes, and technologies.
How design and construction differ from those of the competition
The contribution of added value, as has already been mentioned, is undoubtedly the differentiating element with which the Spanish shipbuilding sector can compete and maintain its position among the leading construction regions on the international scene. Due to the cost of labour and limitations in the size of existing facilities, private shipyards can only compete in projects that are not extensive in terms of labour and materials, or in very specific constructions that are very difficult to execute. We are talking about highly specialised vessels with the need to incorporate unique solutions in terms of technology, design, materials, equipment, etc.
It is in the management and organisation of these projects that we learn that Spanish shipyards are capable of taking on projects that take years to be completed due to their complexity and the customisation required by shipowners.
The extensive experience in new constructions, repairs and naval re-conversions, together with highly qualified personnel and technical resources, make the shipbuilding sector in Spain a reference point. Staff also need to be oriented towards the management of complex projects, with special qualifications in the areas of planning, engineering, supplies and production coordination, all while working under a management system that emphasises quality, environmental protection, and occupational risk prevention and while counting on the resources provided by supporting industries such as finance.
In terms of repairs and conversions, there is an abundance in available work with countless jobs on vessels of all types. This division successfully carries out everything from the simplest repairs to the most complex tasks, such as the renovation of propulsion equipment, engine installation, cutting and shaping processes, etc.
Capturing European and global markets
Although Western Europe is a benchmark in shipbuilding, recent decades have shown that the situation in the sector has changed considerably with the emergence of new players in Southeast Asia and in Eastern Europe. Despite this highly competitive environment, shipyards in Spain and the rest of Western Europe have managed to maintain their position in this global market by focusing on the construction of highly specialised vessels, such that the European shipbuilding sector is currently recognised for its capacity to offer high-tech solutions for both traditional markets and emerging niches, specialising in the construction of passenger ships – cruise ships, ferries, yachts – and offshore vessels.
In terms of government vessel construction, particularly in the area of defence, European shipyards are recognised leaders, as shown by the latest contracts obtained from the Australian, US, and Canadian navies.
As is the case with other European shipyards, the Spanish shipbuilding sector’s specialising in the construction of high added value ships has made the country’s shipyards preferred choices among potential customers as far as the design and manufacture of multi-purpose vessels are concerned.
With a turnover of €4 billion (US$4.74 billion) and employment figures of 25,000 workers in both shipyards and supporting industries, the shipbuilding sector in Spain is centred on three main activities: a) construction of civil vessels (tugs, fishing boats, oceanographic vessels, etc.), b) offshore vessels and platforms, and c) military vessels.
The sector, grouped around small and medium-sized privately owned shipyards – with the exception of the public shipyard Navantia – stands out for the construction of technologically advanced military vessels, chemical and oil tankers, floating platforms, oceanographic research vessels, seismic vessels, tugs, as well as ferries, cruise ships and leisure yachts, and fishing vessels, a segment in which Spain is recognised as a world leader.
The Spanish shipbuilding sector and the Covid-19 pandemic
A little over a year ago, the Spanish shipbuilding sector faced the future with optimism. Private shipyards and auxiliary industries had a stable workload, which guaranteed them around 70 per cent of activity. At the same time, a horizon of growth was predicted, both in shipbuilding – with the prospect of the cruise ship segment taking off – and in the activity of our capital goods manufacturers.
The public shipbuilding sector, on the other hand, offered a rather different picture. The short-term prospects for the public shipyards located in Galicia were not so favourable. With the recent delivery by Navantia of the second AOR ship for the Royal Australian Navy, the Ferrol-based shipyard now has no new workload until 2022, when the construction of the new F110 frigates for the Spanish Navy is expected to begin, and whose order would guarantee a workload of 10 years.
But this prevailing optimism in the civil shipbuilding segment was suddenly dashed with the outbreak of Covid-19 pandemic. The declaration of the pandemic in March 2020 was a blow to all economic sectors worldwide, including the shipbuilding sector, which, as is well known, has a strong export component.
The pandemic brought the Spanish shipbuilding sector to a standstill during the first quarter of 2020, in addition to suspending commercial activity and sales to overseas customers. Although work began to resume gradually in the second half of the year, border closures and global travel restrictions severely hampered commercial activity. As a consequence of this situation, many projects that were about to materialise were paralysed or suspended, and access to new international markets was seriously compromised, to the extent that a significant impact on the sector’s activity is expected in the medium term.
This situation, together with the uncertainty generated by the pandemic, with the constant threat of future outbreaks, has placed the Spanish shipbuilding sector in a very complicated situation.
Short- and medium-term developments
Based on the example of Galicia, the shipbuilding sector is characterised by a business structure based on small- and medium-sized shipyards and an auxiliary industry made up mainly of small- and medium-scale enterprises (SMEs), with an average workforce of 10 employees. This type of company essentially dictates the competitiveness of the sector by limiting its capacity to take on large projects or complex programmes. On the one hand, the small size of the companies limits their investment capacity, a situation which, in turn, hinders the implementation of new technologies that will improve productivity.
These difficulties also have an impact on technological innovation processes. With a business structure based fundamentally on SMEs, the sector has serious problems in obtaining the appropriate means and funding to access R&D programmes, which would otherwise enable them to further improve their competitive advantage.
Faced with these elements that hinder the competitiveness of the Galician shipbuilding industry, the sector, mainly the shipyards, has begun work to change these trends by means of the following:
- Specialisation in the manufacture of high-tech vessels, differentiating itself, in terms of product, from the large Asian shipyards
- Reduction of production costs through the incorporation of new manufacturing technologies to reduce lead times and speed up production cycles
- Improving the quality of products and, by extension, the competitiveness of enterprises through the training of skilled labour
This paradigm shift has its greatest exponent in what has been called the “Fourth Industrial Revolution” or Industry 4.0, and the shipbuilding sector cannot be a stranger to this if it wants to consolidate its position in the global market. For this reason, one of the greatest challenges facing the shipbuilding and ship repair industry in Spain is the application of the Industry 4.0 concept.
To this end, the sector must commit to the conversion of shipyards and auxiliary companies into “smart factories” capable of combining advanced production and operation techniques with intelligent technologies such as collaborative robotics, big data, internet of things, human-machine interaction (HMI), the cloud, cybersecurity, and virtual modeling, among others. The use of these technologies would allow the shipbuilding industry to achieve greater adaptability to market needs and production processes, as well as guarantee the more efficient use of resources.
Oscar Gomez is the Managing Director of Asociacion Cluster del Naval Gallego (ACLUNAGA), an association of shipbuilders based in Spain’s Galicia region.