Ship Building Trend - by Oladokun Sulaiman - Oladok12@yahoo.com

  employment of ships.
  
IntroductionSupply
  
Shipping is not a primary industry in the sense ofTonnage supply in the oil tanker sector increased in
agriculture or mining, nor a secondary industry in the2004 by 12.3 million dwt to 298.3 million dwt as
sense of steel or chemical production. It is a tertiarynewbuildings delivered outweighed tonnage scrapped,
or service industry that responds to the needs oflaid up or lost (see table and. figure). This, combined
the shipping public. As such of that, shippingwithin increased shipments and extended
represents the investment of billions of dollarshaulage,brought down overcapacity to 3.4 million dwt
individual, corporate, commercial and governmentor 1.1 per cent of the total world tanker .eet. In
itself.2004, the total dry bulk. Fleet supply increased by
 27.6 million dwt to 325.1 million dwt. Over tonnage for
From that, the major function of the shippingthis type of vessel reached 2.1 million dwt, equivalent
industry is to close the physical gap between tradingto 0.6 per cent of the dry bulk .fleet. For the
nations by allowing the exchange of extraconventional general cargo. Fleet, overcapacity stood
commodities. This activity is performed worldwideat the same level as in the previous year, with supply
and links all parts of the globe in a network ofexceeding demand by only 0.7 million dwt or 1.6 per
routes, some of which are highly developed andcent of the world .fleet of this sector. The surplus
heavily trafficked. Others used occasionally at certaintonnage of general cargo vessels has been under 1
times of the years. So, water borne transport is themillion dwt for the last four years.
cheapest means of moving large quantities of any 
commodity over long distance although it is in the 
main far slower than other forms of transport. 
  
Owners do more than respond to the signals of the 
market. They continually assess the future needs ofPolicy change
shippers and charterers investing their resources in 
terms of manpower and capital, in new ship design,Recent years have seen many countries coming up
technological improvement and additional shipwith revitalizing and their shipping building industry, in
capacity, realizing profits if they a re right and lossesNigeria cabotages law and ship financing scheme is
if they are wrong.recently established to encourage shipbuilding and ship
 acquisition. The US also introduced the National
Lowering the cost of transportation since World WarShipbuilding and Conversion Act of 1993 and the
II has encouraged the specialization of industrialexpanded Title XI Federal Ship Financing Guarantee
output by shifts in the comparative price advantageProgram. .the same is introduced in other part
of domestic and foreign produced goods and has 
opened remote sources of raw material. World 
economies have never been as integrated as they 
are now. Trade is the most powerful binding force in 
a world filled with incompatible political systems. 
  
  
  
  
  
  
 Demand
  
 The correlation between cargo volume generated by
 different country groups and their fleet ownership is
 summarized in table 29. Developed market-economy
 countries generated 48.9 per cent of world seaborne
 trade in 2004, compared with 53.7 per cent in 1980.
 Over the same period, the tonnage share of the
 fleet of developed market-economy countries fell,
 from about 51 per cent in 1980 to about 27 per cent
 in 2004.
 However, in addition to tonnage under national flags,
 there is also the tonnage of vessels owned by
 nationals of particular countries but registered under
 foreign flags, and the two together bring the share
 of developed market-economy countries to 65 per
 cent. The share of developing countries in world
 cargo turnover has remained at about 40 per cent.
Trends in shipbuilding 
 Their tonnage owned and registered under national
According to Lloyd’s Register, the worldflags increased from 10 per cent of the world fleet in
orderbook for new ships, as measured in gross tons,1980 to 22.6 per cent at the beginning of 2005,
decreased after June 1998. On June 30, 1999, theTonnage beneficially owned by developing countries
world orderbook for merchant vessels 100 grosshas expanded to nearly one third of the total
tons (gt) and over consisted of 2,479 vesselsbeneficially registered tonnage, bringing the total
totaling 53.8 million gt. This represents a 7 percenttonnage owned by developing countries to about 36
decrease from the 2,668 Vessels on order at theper cent of the world .fleet. The share of world
end of June 1998 and a 3 percent decrease in grosscargo turnover generated by the countries of Central
tonnage from 55.6 million gt in June 1998. Theand Eastern Europe remained at about 3 per cent in
average size of merchant ships on order increased 42004, unchanged from the levels of previous years
percent from 20,829 gt at the end of June 1998 tobut significantly less than the 4.7 per cent level of
21,718 gt at the end of June 1999. South Korea1980.
jumped ahead of Japan to regain the dominant 
position in the world merchant shipbuilding market.These countries’ fleet position also declined from
South Korea accounted for 35 percent of the gross5.5 per cent to less than 2 per cent in 2004. The
tonnage of merchant ships on order, followed bysocialist countries in Asia increased their share in
Japan with 32 percent and the People’s Republicworld trade to 8.1 per cent in 2004, while they
of China with 5 percent of the internationalimproved their share in world tonnage from 1.6 per
commercial shipbuilding orderbook (see Figure 22-1).cent in 1980 to 3.7 percent in 2004. In addition, these
At the end of Junecountries have a small share of their fleet registered
1999, the United States ranked twelfth amongin the open registries.
shipbuilding 
 Information on the fleet ownership of the major
 trading nations appears in table 30. The major trading
 nations are also major owners of tonnage, which
The world shipbuilding market continues to facereflects the fact that in trade-supporting policies
serious difficulties, due to an imbalance of supply andmaritime transport can be exploited as a complement
demand. Past expansion of shipyards, mainly in Korea,to trade. Maritime capabilities, specifically ownership of
but now increasingly also in China 3, has led to pricesubstantial tonnage, are generally considered essential
depression. Year 2000 have been a recovery pointfor a country’s trade support and promotion.
due to high level of ordering and increase in priceThe table alsohighlights the similarities and differences
while year 2001 has led to a new reduction inamong the shipping services of the leading trading
prices.The year 2001 has been very problematic fornations. Major trading countries such as Japan, China
the maritime industries world-wide: The Recession in(including Hong Kong), the Republic of Korea,
the US and the terrorist attacks of 11 SeptemberDenmark and Sweden are outstanding among the
has decreased the demand for sea trade and cruises,nations withmaritime services for cross trades. Other
respectively. The decline in ordering affected themajor trading
sectors of Containerships and cruiseships most, 
leading to a drop in overall market share for Korea 
and the EU, which are particularly strong in these 
segments. 
  
The segment Liquified Natural Gas carriers (LNG) saw 
an increase in absolute order volume, however, this is 
still a niche market. Korean yards took most of the 
orders for LNG carriers. They hold 65 % of the 
relevant world orderbook, and 79 % of the new 
orders placed in 2001 went to Korean yards, despite 
the fact that Korea is a relative newcomer in theThe information provided by Clarkson Research
field and the building yards do not hold patents onconfirms the general downwardtrend in ship prices.
the key technologies. Market analysis suggests thatThis applies to all standard ship types and reflects the
Korean yards made inroads in this area due to verygenerallynegative sentiment in the market, despite
low offer prices. Their ability to supply a large numberrising costs stemming from inflation, wageincreases
of vessels at an early delivery date may have beenand higher prices for raw materials priced in USD in all
important in getting a large amount of ordersmajor shipbuildingregions.
also.company in the field and their data is also used 
by international organizations such as the OECD. 
  
  
 Source - clackson research
Challenges in technological developments in the 
shipping and shipbuilding industries over the last few 
years are summarized here by adding the latest 
information to what was reported. 
  
1.                  Energy Saving 
Technology for Ships 
  
In 1981, successful attempts to develop ships mainlyIn accordance with market developments, Chinese
very large ore/ coal carrier, which would consume 40shipbuilders have expressed their intention to aim for
to 60 percent less fuel than conventional ships ofa large scale expansion of facilities, quoting South
comparable size were announced in quick successionKorea as an example to follow. This is likely to lead
and construction of such ships was started. At theto further price decline, unless China herself creates
same time, these techniques serve as steppingsignificant additional demand for ships. China being in
stones for further technological development in thisWTO will equally creat effect in the market.
direction. 
  
2.                  Study on Technological 
Strategy 
  
Expert from universities, the Ministry of Transport 
and the shipping , shipbuilding and ship machineryThe index clearly shows the massive drop in prices
industries gathered and discussed a technologicalfollowing the Asian crisis of
strategy for the coming years, based on the1997/98 and the subsequent efforts to increase
environment of the shipbuilding industry and theprices along the ordering boom in
expected future image of the nation. The conclusion2000. The (not very pronounced) trend towards
s they reached were:better prices stopped in late 2000 andfor the year
·                    Social requirements2001 the trend was reversed as had to be expected
and constraints to be taken into consideration arewith the number ofincoming orders falling. It is
boiled down to building up a socioeconomic systemnoteworthy that 2001 price levels did not keep pace
harmonized with the environment, realization ofe.g. with inflation.
secure and hazard-free life of high quality, realizationWith very limited ordering expected for 2002, price
of an advanced IT-oriented society and assurance ofrecovery will be difficult to
steady supply of energy, resource and food.Achieve, although yards may be inclined to look for
·                    Focus on energyorders in those segments thathave been less
conservation and human labor saving, themesaffected by price erosion. Past experience has,
corresponding to the above-cited general objectivehowever, shown thatthis behaviour does not improve
include conservation of the global and marinethe financial results of yards, but rather leads
environment, pursuit of greater safety and reliability,toadditional price erosion in the targeted sectors, as
application of advanced information technology andlong as the market is characterizedby over-supply.
enhancement of productivity and reliability and 
sophistication of shipbuilding technology and creation 
of new demand to be met by shipbuilders. 
  
3.                  Conservation of the 
Global and Marine Environment 
  
Among the themes concerning the conservation ofNew building
the global environment taken up by the United Nation 
Environmental Program (UNEP), those having directYards, such as Hyundai (HHI), Hanjin (HHIC) and
relevance to the shipping and shipbuilding industriesSamsung (SHI), did not  benefited from large scale
are the prevention of the marine pollution, thedebt restructuring and which operate comparatively
prevention of air pollution and the prevention of“old” facilities show (slightly) higher production
global warming.costs under the debt-based methodology, while
 yards, such as Daewoo (DSME) and Daedong, did 
4.                  Ship Safety andbenefited from debt reductions and moratoria but
Reliabilityoperate comparatively “new” facilities show
 (slightly) higher production costs when basing the
From the second half of the 1980s, bulk carriersinvestigations on the depreciation approach. The two
were wrecked consecutively, tolling many humanapproaches give very similar results for the other
lives and large amounts of resources. Safetytwo major Korean yards, Hyundai Mipo and Samho.
problems of bulkers have been discussed mainly atOf course, results are also influenced by the financing
the IMO and the International Association ofterms of the individual projects investigated.
Classification Societies (ICAS) and legislation for 
greater safety is in the process of development. 
Therefore, they create some solution for them to 
follow it, the solution covered; 
 New ship builders
·                    Enhanced HullSource- European union
Inspection and Maintenance 
·                    Fatigue and 
Corrosion of Hulls 
·                    Monitoring of HullPrediction for future shipbuilding
Strength 
·                    Modernization ofIf we go through the trend of the shipping and
Ship and Establishment of Management Systemsshipbuilding above, we can create and project a new
 development in next few years’ construction.
5.                  Application ofHere, what I am thinking that influence to the
Advanced Information Technology and Enhancementshipping and shipbuilding industries.
of Productivity and Reliability 
 1.                  Justification for
A computer integrated manufacturing system (CIMS)Combined Carriers
for shipbuilding has been studied as a joint project of 
the academic community and private industry sinceIn order to discuss the need flexible ships on certain
year 1987. Realization of the system is an urgentof the world’s trade routes, the following section
necessity in order to transform the traditional laborlooks at the justification put forward by the shipping
intensive shipbuilding sector into a modern industryindustry for the design and operation of combined
and eventually solve the immediate problem of laborore, bulk, oil carrier or ore, oil carrier. These ships are
shortage, especially of skilled worker. Because thedesigned to carry either oil or dry bulk on separate
reduced physical capacity of shipyards and the doublevoyages at different times and are potentially more
hull requirement for tanker will inevitably reduce theproductive than pure tanker or bulk carrier.
numbers of vessels that can be built annually further 
improvement in productivity are required. From thisIn making the decision to invest in combined carrier
CIMS, it introduces;tonnage as opposed to a pure oil carrier or dry bulk
 carrier, the ship-owner is presented with two possible
1.  operating scenarios. He can either combine voyages
2. - Design stageover a period by carrying dry bulk and oil in a
3. - Production planning and production managementsequence that keeps ballast to minimum or he can
4. - Mechanization and automationswitch his ship between the dry bulk and the oil
 market sector. The independent ship-owner seeks to
6.                  Advancement ofminimize his earnings by operating ships; therefore he
Shipbuilding Technology and Creation of New Demandmust adapt management performance to combine
 flexibility with greater earning power.
Studies are under way focusing on the development 
of ultra-high speed cargo ships, and on infrastructure2.                  Combined Voyages
improvements including faster and more efficient 
cargo handling to match the speed of fast marineThe operation of combined voyages seeks to mix
transport, all with an eye to a modal shift in the keyshort ballast passages with longer loaded ones. It
aspect of logistic.takes a different management style and effort to
 negotiate a series of contracts that will keep the ship
The volume of cargo traffic increase annually andemployed to that normally found in bulk shipping
basic physical distribution requirements for evercompany. The use a contract where the ship is not
faster, cheaper and safer transport remain. Overlandnamed in the document, but a promise is given to
transport in particular, is beset by problems ofdeliver the fixed amounts of cargo in given time
congestion, labor shortage an air pollution fromperiods makes it possible to plan the schedules of a
exhaust gas, giving rise to demands by society for afleet of this type of ships. The problem may be
modal shift to marine transport.encountered where the cargo owner may offer a
 lower freight rate than that currently found in the
Research efforts are also made for practicalspot market in exchanged for this type of
application of gigantic floating structures intended forcommitment.
greater utilization of oceanic space. It is hoped that 
shipbuilding technology be further advanced so as to3.                  Spot Market Operation
create new demand to be met by shipbuilders. 
 The basic assumption underlying this philosophy is
 that the shipping market follows a pattern, which
 enables the time, when it is advantageous to transfer
 the combined carrier from oil trading to dry bulk
 trading to be calculated. This means that when
 tanker rates are high, the ship is traded in the oil
 market as a tanker, but when this rate falls there
 comes a time when the dry bulk rate will be higher it
 is the profitable to transfer to dry bulk trading.
  
Summary of market share –all ships type4.                  Event Affecting
 Combined Carrier Utilization
According   ships data’s collected from 
clackson research report, Japan, china (including Hong5.                  Energy
Kong ) , the  republic of Korea , Denmark and 
Sweden are outstanding among the nations withAlmost all commercial merchant ships are powered by
maritime services for cross trades.oil fed plant. However, the oil crisis of the last few
 years has highlighted the need to research the likely
Other major trading nations are major importers orpower plant of the future. Amongst the many
users of shipping services while maintaining a relevantoptions, three alternatives to oil seem to have gained
ownership position and to lesser extent a nationalthe most attention.
flags – for example the united stares come into 
this group. According to UNCTAD report the United·        Steam power
States account for 13% of world trade while owned·        Wind power
5.9 % of world tonnage with only about 1/4th of·        Nuclear power
such tonnage flying the national flag. Similarly France 
account for .5% of world trade and .0 % of tonnageNew project investigations
ownership with flag having a share of ½ of this 
percentage.Since the last shipbuilding report six more orders (all
 placed in South Korea) wereinvestigated in detail, in
Korean yards continue to price ships below cost whileorder to establish the actual building costs. The
others are trying to improve their bottom line. Mostinvestigatedorders are:
major Korean yards managed to show a profit for– VLCC, 48 120 cgt, to be built at Samho Heavy
2001, due to high sales volume at expense of price.Industries;
 – LNG carrier (series of 5), 71 850 cgt, to be built
The source mostly referred to in this report is H.at Daewoo Shipbuilding and
Clarkson Ltd. 11 and its various subsidiaries (inMarine Engineering Co. Ltd. (DSME);
particular Clarkson Research). While Clarkson is a– LNG carrier, 69 675 cgt, to be built at Samsung
well-recognizedHeavy Industries (SHI);
 – LNG carrier (series of 2), 88 500 cgt, to be built
 at Hyundai Heavy Industries
 (HHI);
 – Suezmax crude oil tanker (series of 4), 30 800
 cgt, to be built at Samho Heavy
 Industries;
 – 5 762 TEU containership (series of 2), 42 835
 cgt, to be built at Samsung
 Heavy Industries (SHI);
  
 DSME has become the leading builder of LNG carriers
Demands for shipbuildingin the world, with sixteen ships on order, giving the
Research and development Forecast under analysisyard an economy of scale unseen before. However,
of cargo volume and correlation with fleet ownershipthe detailed analysis undertaken revealed that for the
generated has allows have also been a useful tool forconstruction of LNG carriers there are limits to the
various decision making process to meet market andimprovement in efficiency as some yard equipment
demands call in maritime industry a swell as increasedneeds to be duplicated, leading to high up-front
productivity and cost reduction in the construction ofinvestment costs. Furthermore, DSME managed to
ships. So far, because of the complexity of thestart as a new company in late 2000, shedding most
maritime industry- maritime structures and maritimeof the debts of its predecessor.
transport services are largely interrelated, therefore, 
demands to meet productivities, efficiency of theTherefore DSME can operate a very large
construction of ships, Technology and Improvementstate-of-the-art shipyard without the massive initial
of competitiveness depends on the followinginvestment costs being reflected in their product
componentsprices. Nevertheless DSME still stands at a debt to
- Organizationequity ratio of 279 % (estimated for 2001), and
- Human factoralthough it is currently cash rich due to high order
In particular, in order to achieve substantial costintake in 2001, this is likely to be dissipated when
reduction, productivity gains, production processthose orders need to go into production and the
simulation under technological and organizational, thisactual building costs begin to be incurred. SHI remains
along side with other factors of labor andburdened with a comparatively high level of debt (the
incorporation of new ICT tools for interconnectivitydebt to equity ratio for 2001 is estimated to be still
between different systems will be taking intomore than 200 %) and this fact is reflected in their
account and incorporated as necessarily.cost base. SHI also suffers from a lower productivity
In addition to this the following factors has alsothan its Korean competitors, leading to higher wage
influence the market of sea transport:costs. In addition SHI did not manage to attract
 multiple orders as Daewoo and Hyundai did and this
- World Economy: the world economy with its outputhas to show in the unit costs.
and trade is the most important single factor to 
generate demand for shipping and any crisis in theAfter being able to dispose of some non-performing
world economy reflects in the demand for shipping. assets stemming from HHI’s previous
Ups and downs of shipping demand are alsoengagement with other Hyundai subsidiaries, HHI
proportionate to world trade. The world economyseems now to be heading towards profitability.
that may bring about change in the demand for seaHHI’s debt to equity ratio is assumed to reach
transport through:183 % in 2001, but, as with all Korean yards, an
 assessment of the yard’s financial situation is
·        The Business Cycle: The business cycledifficult to make. Very few meaningful financial
lays the foundation for freight cycles. Fluctuation infigures are given and published accounts are not very
the rate of economic growth work through in to therecent and have little or no annotations.
sea borne trade, creating a cycle pattern of demand 
for ships. For example, two major recessions in 
shipping business in 1975 and 1981-1983, which 
co-incited with the recession of the world economy. SOURCE CLARCKSON RESEARCH 
These economic cycles arise from a combination of 
external and internal factors. The external factorsConclusion
include events such as wars or sudden changes in 
commodity prices such as crude oil, which cause aThe world shipbuilding market is characterized by a
sudden change in demand. Internal factors refer tostrong imbalance of supply and demand, that
the dynamic structure of the world economy itself,over-expansion of shipbuilding capacity in Korea has
which it is argued, leads naturally to a cyclical ratherled to very low offer prices in most market
than linear growth path. Five of the most commonsegments and that the resulting losses for Korean
business cycles are-yards, in some cases, have been compensated
Concurrently, this make the designing and building ofthrough financial restructuring which.
highly complex maritime systems, be it ships, floating 
factories or fixed structures, requires the bestThe world merchant fleet expanded to 895.8 million
possible multidisciplinary approach that focus ondeadweight tons (dwt) at the beginning of 2005, a
- Simplicity (in lay-out and operation)4.5 per cent increase. Newbuilding deliveries increased
- Robustness and reliabilitymarginally to 49.4 million dwt, and tonnage broken up
- Ease of maintenanceand lost was more than halved to 10.6 milliondwt,
- Low manning requirementsleaving a net gain of 38.8 million dwt.
Inline with contemporary issue of sustainable safe 
and environmentally friendly ship operation, usingThe fleets of oil tankers and dry bulk carriers, which
- Design Tools.together make up 73.3 per cent of the total world
- Design Methods.fleet, increased by 6.1 per cent and 4.2 per cent
- Production Processesrespectively. There was a 8.4 per cent increase from
- Production Technologies90.5 to 98.1 million dwt in the container ship .fleet and
Commodities that have share of commodity for seaa
trade are raw material of agricultural industry, Metal7.6 per cent increase from 20.9 to 22.5 million dwt in
Industry, Forest Product, Other Industrial Material,the liqufied gas carrier’s .fleet.
Other Manufactures. 
 The average age of the world fleet dropped
The most important technical development was themarginally to 12.3 years, with almost 27.3 per cent of
unitization of the liner shipping business. The shippingthe .fleet 20 or more years old. General cargo vessels
industry has been so successful at exploiting thishad the highest average age (17.5 years) and
technical development that the cost of sea transportcontainer vessels the lowest (9.4 years).
has hardly increased- Coal and Oil cost little more to 
transport. 
It is generally considered that maritime capabilities,Registration of ships by developed market economy
specifically of the ownership of substantial tonnagecountries and major open-registry countries
are essential for a county trade support andaccounted for 27 and 45.1 per cent of the world
promotion. This report will highlight data’s of.fleet respectively. Open registries increased their
major trading countries, the relationships and impacttonnage marginally; two thirds of this beneficially
between cargo and tonnage and the flag of registryowned. Fleetis owned by market-economy and
in the mid 1990s than in 1940s.developing countries. Developing countries’ share
Market trendreached 22.6 per cent or 202.3 million dwt, of which
 155.9 million dwt is registered in Asia.
 According to UNCTAD maritime review Japan, 
Korea’s china has made more than dramatic 
change that revolutionary’s shipbuilding. It has 
observed that shipping building and its associated 
industry is quite conservative, and they are more 
subjects to government influence and policies. This 
influence has provided fluctuation trends in theReferences:
industry and of course the demand and supply for        I.      S.R.Tolofari (1989), “Open
cargo are determinant for demand for new ships.Registry Shipping, AComparative Study of Costs and
 Freight Rates”, Gordon and Breach Science
A summary of the balance of tonnage supply andPublishers, Amsterdam
demand for selected years appears in  table - The     II.      Roy L. Nersesian (1981), “Ships
total surplus tonnage in 2004 was about half that ofand Shipping, A comprehensive Guide”, Penwell
the previousyear – 6.2 million dwt. This wasBooks, Oklahoma
largely attributable to the high level of vessel  VII.
scrapping over the last few years and to increased