Can governments contribute to the development of the shipbuilding industry without resorting to public procurement? In a North American context, can we gain market share on Asia, the dominant player in this field?

A report released by researchers at the National Defense University (Eisenhower school) in the spring of 2015 partially addresses these issues. [1] It concludes that they are competitiveness problems in the  U.S. industry against Asia. China, Japan and South Korea now occupy more than 80% of the market share of shipbuilding on the commercial segment contracts.

Analysis of the strengths, weaknesses, opportunities and threats (SWOT), [2], highlights the importance of the national defense budget to compensate for the weaknesses of U.S. industry in the commercial segment.

Currently, this industry survives almost exclusively  on public procurement, notably with the military sector. It represented 38.1 billion $ in 2014, and is expected to grow annually by 3.9% per year until 2019, or 46 billion $. Barely 15% of revenues of the U.S. industry are related to the export.

One of the flagships of the report recommendations is that,  in order to ensure predictability of revenues of the industry, a strategy of public long-term purchases is necessary, as what presumably has been done in Canada. [3] However, an approach which uses public procurement for economic development purposes may have some shortcomings: it makes governments abdicate the implementation of structural measures for commercial market development; it distorts the objectives of a public policy of national defense in favor of strictly economic ones and, ultimately, undermines the efforts of the industry to increase its productivity, which would make it more competitive commercial international markets.

We must recognize that government contracts are important to ensure and maintain shipbuilding industry’s development. But dependence on collateral in the long term, as suggested by the authors of the report, can have a deterrent effect on modernization and the willingness of the industry to increase its competitiveness.

It is a vicious circle which can contribute to the maintenance of a perpetual claim of government contracts to ensure the survival of an industry in loss of competitiveness. Such a strategy cannot be a goog one. However il is not far from what currently prevails in Canada.

In addition to national defense, what are the competitive advantages of the North American industry? How to compete with the Asian monopoly in this area? The following text describes the international context, the main factors of competitiveness at the international level as well as the opportunities that will arise to the North American industry in the future.


An industry dominated by three Asian countries

Estimated global shipbuilding industry revenues were 258,21 billion $ US in 2014. Its average growth rate was 1.1% between 2009 and 2014. Exports accounted for 156.6 billion $. Repairs, which are less capital intensive, accounts for 6.9% of revenues, while shipbuilding is 63.8% at the global level. North Asia (China, Japan and South Korea) owns some 60.2 percent of the revenues of the industry. Second place goes to Europe, behind with 16 percent of the market.

In the space of a few years, Asia has emerged as a world leading commercial shipbuilding. From 2010 to 2014, China, the Japan and Korea alone built 84% of new tankers, 86% and 94% of the tankers and LNG carriers and 95% of bulk carriers [4].  During this period, the Chinese shipbuilding industry annual growth rate was 2.5%, far superior to the growth industry average to 79.4 billion $. The Chinese industry focuses mainly on commercial ships such as bulkers, containers and tankers.

Note that the competition between the countries of the Asian triad is also extremely strong. In the early 1960s, Japan, supported by its industrial conglomerates system, was leading.

Subsequently, in the 1990s, South Korea emerged as new champion, due to the support of its government, a skilled, hardworking and cheap labor force, as well as a favourable exchange rate. In 2003, South Korea had 44.8% of the  world’s orders, against 28.2 percent for its Japanese competitor.

In the early 2000s, China was leading because of rapid growth of its economy. China already had 40.8% of the global market against 30.9% for South Korea. [5]

These three major shipbuilding powers are now facing great challenges and needs to restructure due to the global economic gloom. Prices of ships are falling. A bulk carrier which cost around 100 million US $ in 2008 did not exceed 55 million US$ in 2014. Some Japanese groups have had to relocate part of their production particularly in Philippines, the new rising power of naval building  [6]

This contrasts with Europe from 100 years ago which had at that time 80% of market share. The shift of markets shares from Europe to Asia demonstrates that this market is contestable in the long term. However, Europe has managed to preserve its market share for the construction of cruise ships. In this area, Europe constructed some 24 new vessels for a total of 12 billion $ CAN between 2012 and 2016. [7]


Low labour costs

In the shipbuilding sector, technological advances are limited. Western countries have struggled to be competitive based on low labor costs against in Asia.

Much of the work is still done manually by skilled workers and technicians. The construction of a ship cannot be automated. Against this competitive advantage, it is almost impossible to compete with the Asian countries without possibility of innovation and differentiation, or without the possibility of economies of scale.

It is recognized that low wages contributed to initial success of Japan and South Korea. Generally speaking, in Europe, total labour costs represent between 30 and 40% of the price of a standard building. They are about 15% of the price of the ship in South Korea[8]

Protectionism and interventionism

The governments of Japan, South Korea and China have intervened in many ways as part of their industrial policies to support the industry. [9] These aggressive policies have contributed in giving a competitive advantage to Asia, notably by granting subsidies to shipyards.

The intervention of Governments was repeatedly criticized by several Governments including Canada. An investigation by the European Commission on subsidies under the regulation on trade barriers (TBR) showed that considerable subsidies had been granted to projects through domestic programs and export. This is contrary to the WTO agreement[10]  Despite several attempts to assert the need for rules of fair play for all countries,  no progress has been met.

The United States are not to be outdone. The US Merchant Marine Act of 1920, known as the Jones Act, states that all vessels assigned to internal trade to the United States must be built in the United States. A simple amendment to this law could give a huge advantage to Canadian yards. The buyers could take advantage of a favorable exchange rate. But, according to some, it would be unlikely that one could influence the U.S. position on this issue. [11]

New financing methods

Over time, some new modes of funding were used for the purchase of new vessels. This has been again to the advantage of the Asian industry. For example, (ACE) export credit agencies participated more and more in the financing of maritime industries since the 2008 crisis, while Bank lending declined. [12]

The ACEs are government institutions which serve as intermediaries between buyers and sellers. Their role is to reduce the risk of funding by providing insurance products, bond financing, and offer buyers credit. There are more than 70 of these agencies in the world. For the year 2011 only, they have been responsible for more than 1 760 billion $ of financial commitments.

Asia being the largest export market in the world, the two biggest clients of these agencies are the South Korea and the Japan. In the shipbuilding sector, the proportion of debt financing involving the ACE went from 10 percent in 2008 to 33 percent until now. [13]

The popularity of those new forms of financing in the shipbuilding sector is related to the specific structure of the industry :  the systematisation is limited and financial and production risks are high. The increased risk may push away traditional funders. Financial interventions are specialised, adapted and supported in part by the governments.

A high volume of activity

Not surprisingly, the volume of the activities of a sector can be a gravitating factor for the location of related sectors. Asia, including China, dominate not only shipbuilding sector, but also other areas of the maritime sector, such as transport and port activities.

Of  the ten largest ports in the world, nine are from China (2013) and two of these have a capacity of more than 700 million tons of volume. Among the Western ports, only Rotterdam pulls out of the game, with a little more than 400 million tons.

Seaborn transportation remains under the influence of Europe and Asia. Four countries alone, Greece, Germany, Japan and China, are responsible  [14] for  more than 800 million tons of deadweight (DWT),  nearly 52% of global market. In this sector too, China is getting stronger as she now represents 15% of world tonnage  [15]  From those figures, one can easily understand why such an activity induces high demand for shipbuilding.


The following text proposes three broad guidelines wich would help Canadian industries to stand out from the competition in the shipbuilding sector: development of niches, cooperation and funding.

The development of niche and specialty markets

In response to the emergence of Asian countries in the sector of shipbuilding, several European countries target niche markets. 300 shipyards in Europe bring jobs to some 500 000 workers and generate revenue of more than 50 billion $ CAN. The development of these new markets remains crucial to maintain these jobs.

Among European niches, the construction of cruise ships is a sector which has never been threatened by Asian competition. There are also specialized “offshore” renewable services, particularly wind farms at sea. Finally, due to concerns about the environment, the development of new green technologies and energy-echo shipbuilding have become a priority for Europeans.

The European Ship and Shipbuilding Technologies (BESST), a research group funded by the European Economic Community, has brought together companies such as Fincantieri, STX group, Meyer WERFT, Damen Group, in order to define new concepts, design and new environment-friendly naval construction techniques and energy saving. [16]

Some Canadian shipbuilding niches

Canada has an industrial base that is competitive in several high-tech sectors, particularly in those of energy, metallurgy (aluminium), engineering and design. Those sectors can develop specialties in the shipbuilding sector.

For example, Offshore industries will long remain a growing market and will generate a demand for transportation of construction products and building of certain types of specialized ships, such as collector ships for LNG, tankers for oil or chemicals, specialized vessels as tugs, barges, search and inspection boat.

In the North, the Canadian Northwest passage will bring significant changes to the routes used to join the continents. Several countries have already launched production of specialized ships, including icebreakers carrying LNG, oil or chemicals. A Russian mega-project provides delivery of 16 icebreakers carrying LNG this year. This project is related to exploitation of natural gas from the Yamal Peninsula in Northwest Siberia.

In addition, the cruise industry is growing in different markets such as the observation of marine mammals, tourism of excursion and observation. These specialised segments require buildings tailored to the different types of tourism activities. Repair of vessels will also benefit from the increased traffic of cruise ships because of continued growth of this market segment.

Cooperation in shipbuilding

Cooperation develops more and more in the maritime sector. It aims to take advantage of the specialization of some sites in order to increase the productivity and competitiveness of the industry compared to other competitive groups.

The general idea is that it is possible, with current technology, to build parts of the same project on different sites in different parts of the world. Cooperation brings together the knowledge of two or three manufacturers in order to create economies of scale, reduce fixed costs and enjoy technological benefits.

These models are similar to those found in the aeronautical industries and allow decrease in the risk and take advantage of the comparative advantages of several regions including wages and the exchange rate. Somehow, the company that gets the contract becomes an ‘Integrator’.

It is not uncommon that several dockyards act as subcontractors for some projects while they compete for another contract. This cooperation helps smaller companies and lead to better production practices, increase productivity, control costs, and deadlines respects.

New ways of financing shipbuilding

With the phenomenon of gigantism, the recognition of the risk associated with projects could alter the ways of financing projects. Traditional financial institutions may not have the expertise or the willingness finance riskier projects. For this reason, almost all countries offer tools to help finance shipbuilding projects. Two of these tools are money-back guarantees and export credits.

The mechanism of a money-back guarantee can be described by the following [17]: the buyer of a ship must normally pay a substantial share before taking delivery. The Government then offers the shipyard a money back guarantee which is a negotiable title corresponding to payments negotiated by buyer. If the buyer terminates the contract, the State Bank pays a significant part of the payments made to the buyer or its funder.

Export credit [18] implies a government institution for a loan or a loan guarantee to a buyer.

These tools increase the leverage for buyer financing. In the current economic context, they protect buyers and lenders and give an advantage to the shipyard to obtain more orders.



Louis Bellemare

The New Maritime World 



[1] Eisenhower School for National Security and Resource Strategy,

[2] SWOT: Strengths, Weakeness, Opportunities and Treat

[3] National strategy of shipbuilding (NSPs),

[4] Fleet built from 2010 to 2014 by type of vessels and country, ISL-Institute of Shipping Economics and Logistics,

[5] Shipbuilding in the extreme East, conversion to a carrier industry,

[6] South Korean in difficulty, the world, oct 2014 shipbuilding

[7] Ships – EU shipyards are set to build more than 24 new cruise vessels, worth a total of more than €12bn, between 2012 and 2016.

[8] The engine of industrialization, Anne-Marie Mureau, shipbuilding

[9] For a real revival of industry shipbuilding., Confederation of national trade unions.

[10] European Parliament, overview, technical sheet,

[11] Idem, page 15

[12] Shipbuilding in the extreme East, Transformation of a carrier industry, c. Diversification in a favourable context, notes of synthesis of the ISEMAR, higher Institute of the Maritime Institute, Nantes.

[13] Ditto

[14] Deadweight tons: maximum loading that can transport a ship.

[15] Atlas 2015, maritime issues, Chapter 9 the fleet business, p. 83

[16] Ship –,

[17] For a real revival of the shipbuilding industry, p. 25, Confederation of national trade unions.

[18] CAFA, mergers and Acquisitions, financing and Services Council,


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