The pandemic has not only lead to short-term distortions, but also to considerable uncertainties for the medium-term development for German shipyards and technology companies, equipment association VSM said.
A sharp increase in public and private sector debt will result in high consumption losses. Existing trends that impede the global exchange of goods will be reinforced. Global systemic tensions, especially between China and the US, were intensifying.
In such an environment, investment decisions related to capital goods, such as ships, are typically postponed. Therefore, the shipbuilding sector should prepare for an extended period of low demand worldwide, VSM warned.
Considering the weakness of the shipbuilding market since 2016 – with the global newbuilding orderbook remaining more than 40% below production capacity over the past four years – this additional drop in demand will severely impact on the current under-utilisation of the world’s shipbuilding capacity.
Cancellations of confirmed orders could further exacerbate the situation. Intensified price dumping practices and subsidy races can be already seen.
Thus far, both German and European shipbuilding, both strong in the cruise ship and ferry markets, have been able to decouple themselves from the weak global shipbuilding economy by successfully focusing on high-tech segments.
On average, the European pre-Coronavirus orderbook would have kept shipyards busy for more than four years, much longer than in other shipbuilding countries, such as China, South Korea or Japan, where the current orderbooks would last roughly two years.
However, this larger order backlog cannot hide the fact that European market segments are being hit particularly hard as complex projects require longer lead times.
In Europe, on average, more than 3.5 years pass between the signing of a newbuilding contract and the ship’s delivery; in the case of passenger ships and yachts, the pre-contract phase sometimes takes a similar amount of time.
Thus far, the most successful shipping segment – the cruise sector – has ordered its ships predominantly (95%) in Europe. But this ship type has been hit the hardest by the pandemic.
While cargo vessels are suffering from a reduced cargo volume, the cruise industry has seen its operation come to a total standstill. Therefore, it is unlikely that any new orders will be placed in this segment for years to come, VSM said.
When considering crisis management in shipbuilding, the industry as a whole must be considered. Particularly high employment is achieved in the complex value chain, which in shipbuilding, has a particularly high domestic share.
Taking all types of ships, in Germany, there are about 2,800 companies with around 200,000 employees active in shipbuilding and ocean industries. Together they generate a domestic value added of about 85% on deliveries from German shipyards.
Europe is by far the most important market for the maritime supply industry. The export-oriented maritime machinery and systems suppliers generate about a quarter of their turnover from Asian shipyards.
The industry must now make every effort to reduce its cost base, while maintaining its technology leadership and keeping most of its skilled workforce employed.
For the same reason, it is imperative to continue research and development and maintain the focus on maritime climate and environment protection, even during the crisis.
Furthermore, it is time to finally introduce effective measures to fight unfair competition in the shipbuilding sector so that once the market recovers, a healthy and competitive shipbuilding industry can make a lasting contribution to national prosperity and a clean maritime economy.
The German Shipbuilding and Ocean Industries Association (VSM) represents the political and commercial interests of the German maritime industry and its complex value chains covering a great diversity of maritime market segments.
