Big Changes Coming to German Shipbuilding
The German shipbuilding industry is on the verge of big changes, due to a new development strategy recently approved by the national government.
The new strategy, known as the National Master Plan for Marine Technology (NMMT), is expected to significantly increase the volume of German shipbuilding and to raise Germany’s worldwide visibility in the marine and on-board equipment industry. German chancellor Angela Merkel is personally overseeing the government’s implementation of the strategy.
According to German government data, total shipbuilding and on-board equipment revenue is currently estimated at 18 billion euros, while the annual volume of production is estimated to be roughly 1.4 million gross tons.
The implementation of the strategy is expected to allow Germany to significantly increase these figures during the next several years. In the case of revenue, the figures will rise to €23 billion by 2018. At the same time the number of domestic shipbuilding enterprises, (currently estimated at more than 2,800 companies) should also increase.
The German shipbuilding industry currently employs about 94,000 workers. Of those currently employed in German shipyards almost a third are located in Lower Saxony, followed by Mecklenburg-Vorpommern, Schleswig-Holstein, Hamburg and Bremen.
At present Germany holds about 21 percent of the EU on-board equipment market, with about 60 percent of the country’s production, valued at 7.4 billion euros, being exported abroad.
In recent years the German shipbuilding industry has been consolidating, as is seen by the withdrawal of smaller players from the market and their acquisition by larger companies. This consolidation has taken place despite the fact that the country’s shipbuilding industry was able to fully recover from the consequences of the global recession, which resulted in its deepest crisis of the post-war period. According to an official report by the German Shipbuilding and Ocean Industries Association (VSM), during the period of 2007-2009 new ship orders in Germany declined by more than 90 percent, which resulted in the withdrawal of many unspecialized German shipyards from the market, due to their inability to face competitive pressure from Asian shipbuilders.
According to Konrad Lammers, a Research Director of University of Hamburg and a well-known expert in the field of German shipbuilding, the effect of the global recession on German shipyards was comparable to the effect of World War II, and then again in the following years when the shipyards that had not been damaged were disassembled by the Allies. However, according to Lammers, World War II and its consequences proved to be a blessing in disguise as it opened possibilities for a very prosperous shipbuilding industry in the fifties.
“Relatively high productivity and low wages made German shipyards highly competitive,” Lammers says. “As a result of this, by the mid-fifties, the German shipbuilding industry had grown to become number two in Europe after the UK; 17.3 percent of vessels completed worldwide in 1956 were built in German yards. By the 2000s Germany was able to overtake the UK and become the world’s shipbuilding technology leader.”
According to the German analysts, since the beginning of 2000s the competition with Asian shipbuilding nations has tightened, although the latter (and especially Chinese shipbuilders) mostly specialize in the production of simple container vessels and can’t compete with German shipbuilders in terms of marine technologies and the level of technical complexity of shipbuilding.
Under the new government terms, new shipyards will be established in different parts of the country. While the majority of leading German shipyards are located in the north of Germany, the new strategy involves establishing new shipyards in the southern and central parts of the country. This will allow for better geographical diversify for the shipbuilding industry.
As part of the strategy, particular attention will be paid to increasing the production of specialized commercial ships, instead of the series production of standard vessels.
Some of the vessels expected to see increased production during the next several years are cruise ships, mega-yachts, ferries, ro/ro vessels, Coast Guard vessels and other vessels requiring a high level of technical complexity. Particular attention will be paid to the building of ships for offshore development, including seismic vessels for the discovery of new offshore oil fields. In addition, German yards plan to accelerate building of megayachts (and in particular those longer than 70 meters), which are expected to be another sphere of specialization of German shipyards for the next several years, with Lürssen Shipyard in Bremen expected to become an important superyacht builder in Germany and the EU.
Among the current leading players in the German shipbuilding market is Meyer Werft, which secured one of the largest orders in modern German shipbuilding, valued at €707 million ($959 million) at the end of 2013 for a giant 163,000-gt cruise ship for Genting Hong Kong. At the same time Flensburger, which mostly specializes in the production of seismic vessels and ferries, remains another market leader, as does Thyssen-Krupp.
Several months ago Meyer Werft reached an agreement with South Korea’s STX over the acquisition of the ailing STX Turku Shipyard, one of the largest Finnish yards, which mostly specializes on the building of civil, commercial ships and cruise vessels.
The new strategy also involves building new repair shipyards, an important part of port infrastructure.
The plans should allow German shipyards to significantly strengthen their positions in the global market of complex ship conversion, and especially in the segment of conversion of ferry and passenger ships, as well as drilling ships, and vessels for the production and storage of hydrocarbons.
The implementation of the new strategy is expected to allow German shipyards to more efficiently compete with the shipyards from neighboring countries such as Poland, Denmark and the Netherlands, as well as Mediterranean shipyards, including Spanish and Turkish shipyards, which gain benefits from more favorable prices for steel and closer location to main shipping routes.
The German government plans to provide significant assistance to domestic shipbuilders, which should help them to achieve the goals included in the strategy. One of these benefits is the provision of tax advantages to the country’s leading shipbuilders as well as the covering of interest rates on loans. During the period of 2010-2012 the German shipbuilding industry experienced a series of bankruptcies of the leading national shipyards, and the government hopes to avoid the same situation in the future.
The German government also plans to support the development of naval shipbuilding, but the volumes of its state support will be significantly lower, than those of the private sector.
In addition to shipbuilding, the new strategy also involves a significant increase in the production of marine equipment in Germany in the near future. Amid increasing offshore development, particular attention is expected to be paid to the building of ships involved in the oil and gas industry.
The German marine engineering sector is currently comprised of more than 500 companies and nearly 200 research institutes with an annual revenue of about €11 billion, but these figures are expected to increase significantly under the new strategy, to 700 companies, 300 research institutes and 14 billion euros respectively, over the next several years.
The production of offshore equipment currently remains one of the most promising segments of German marine engineering, which accounts for two-thirds of the total market revenues.
Amid the ever-growing popularity of renewables, the new strategy involves building specialized ships for the service of offshore wind farms, which have increased significantly in the EU, and in particular Germany, in recent years. An increase in the construction of related offshore installations and converter platforms is also expected.
Finally, the new strategy also involves the expansion of export markets. As part of this, the German shipbuilding industry is considering accelerating its presence in the markets of emerging nations, and in particular China, India as well as Russia. In the case of Russia, in recent years the demand for high-tech marine engineering and technologies from Germany among the Russian shipbuilders has significantly increased, but the recently imposed Western sanctions on Russia have resulted in a ban on further supplies of German marine and shipbuilding technologies to Russia.
Some of the Russian interest in German shipbuilders could be related to changes in Russian shipbuilding assets. One of these is Zaliv, one of Russia’s largest shipyards in Crimea’s Kerch, which may declare bankruptcy this year because of a difficult financial position brought about by a lack of orders.
The Shipyard was recently expropriated by the Russian Crimean government from its former owner Konstantin Zvevago, a well-known Ukrainian businessman, and since that time its financial position has significantly deteriorated.
Because of the current economic blockade of Crimea, Zaliv was forced to suspend work on the construction of tankers, despite recently announced plans of the Russian government to make Zaliv one of the leading shipyards for the production of tankers in Eastern Europe.
In addition to tankers, another project at Zaliv, the construction of a new series of passenger high-speed vessels, will probably also be suspended. This has already resulted in the introduction of a part-time work shift at Zaliv and the reduction of salaries for its workers. This may also result in the cutting of a large number of workers at the yard, which currently employs more than 1,000 people.
The situation for the Shipyard is also aggravated by the fact that the majority of the yard’s foreign and even Russian partners refuse to work with it, amid the fears of the imposition of direct sanctions against them.
In this regard, the current management of the yard and the Crimean government have not ruled out the possibility of calling on the Russian government to provide funds to save the yard from bankruptcy.
However, according to some sources close to Denis Manturov, Russia’s Minister of Industry and Trade, due to the current economic crisis in Russia and the devaluation of the ruble, caused by Western sanctions, and massive cuts of budget expenditures this year (which may reach RUB 1,3 trillion (US$30 billion), the government does not have enough funds to provide a support to the yard.
According to earlier statements by Manturov, Zaliv could be used to build oil tankers and LNG carriers for Rosneft and Gazprom, thanks to its large 300-meter by 70-meter shipbuilding dock, which has no equivalent in Russia.
Before the Crimean annexation, up to 95 percent of Zaliv’s production was exported, the main markets including Norway and the Netherlands.
According to Andrew Skrinnik, the Crimean Minister of Industry, the production capacities of the yard are now largely inactive, and a change of ownership offers the chance of revitalization.