Down but Not Out

Malcolm Latarche
Malcolm Latarche

05 February 2016


After reaching a peak four years ago, Asian shipbuilding output has declined as the effects of the 2008 crash and subsequent decreasing world trade have affected the global orderbook. Starting from a much stronger base, Asian shipbuilding has managed to weather the storm better than elsewhere in the world and the big three building countries of China, South Korea and Japan each have an output that exceeds the rest of the world combined. There is a second division of Asian countries including Singapore, Philippines, Vietnam and India that have grown along with their bigger neighbours and which with lower labour costs have also managed to survive and attract some significant orders such as a three ship series of 20,000teu vessels given by CMA CGM to Hanjin Heavy Industries subsidiary at Subic in the Philippines. But while they have the lion’s share of ships, Asian builders are not in a good place financially. Having realised that the boom days of the years leading up to 2008 were over for most types of cargo ships, Chinese and South Korean builders in particular focused on offshore ships as a means to maintain orders. That is a strategy that worked for a time but the falling oil price has meant that demand for offshore vessels has collapsed. In other countries too the effect is being felt. Vietnam and Singapore both have offshore specialisations – the first in PSVs and similar types and Singapore in rig and platform work. It is recognised that there are now probably too many yards in Asia and not all of them will survive. In controlled economies such as China it is possible for the state to cull yards in order for the remainder to be able to survive. Such a move has just been carried out with the Chinese government drawing up a list of yards active in offshore building that will be ‘supported’. Whether the strategy will be a success remains to be seen but a prolonged period of low oil prices will likely discourage further orders in any case. So far the yards that have made it onto the list are Yantai CIMC Raffles Offshore Engineering, China Communications Construction Group, Shanghai Zhenhua Heavy Industry, China Ocean Shipping (Group) Company, COSCO (Qidong) Marine Engineering, China State Shipbuilding Corporation, Shanghai Waigaoqiao Shipbuilding, China Merchants Bureau Group, China Merchants Heavy Industry (Shenzhen), China Shipbuilding Industry Corporation, Dalian Shipbuilding Industry Offshore Engineering, China Ocean Shipping Company and COSCO Nantong Shipyard. Korean shipbuilders have tried to follow a quality rather than quantity strategy and attract sophisticated ship types leaving the simpler vessels for Chinese yards. For a while this appeared to be working with the leading builders at one time having a very healthy book of LNG carriers, mega container ships and large drill ships. New orders have been hard to come by for the last few years and options have been cancelled. It appears that the leading builders have failed to achieve much more than half of their planned revenues this year and are facing financial difficulties. Highlighting just how bad things have become, STX which was once powerful enough to buy up European builders in France, Finland, Norway and Romania has lost all of its overseas empire and has been in protective bankruptcy for the last two years. Almost certainly South Korean builders will be needing financial assistance through next year and very likely beyond that. This is not the first time this has happened but unlike the early years of the 21st century when European builders and governments sought to stop what they saw as unfair subsidies by the South Korean government this time around there is much less of a European industry to fight for. That Asian nations have gained a dominant position in shipbuilding over time cannot be disputed, but visitors to maritime exhibitions may be forgiven for thinking that in other aspects of marine technology Asian nations are trailing their western competitors. Looking at the exhibitor lists of events such as SMM and Nor-Shipping, the number of exhibitors from Asia does not reflect the dominance of shipbuilding that might be expected. In comparison, the large contingent of European equipment makers at the main Asian events is usually equal to or exceeds the number of domestic exhibitors. However, while the importance of European equipment makers and service providers on the global stage should not be understated, their presence at Asian exhibitions is aimed more at making the suppliers lists of the builders than at local operators. The low turnout of Asian makers in Europe on the other hand is recognition of the fact that most visitors to European exhibitions are operators looking to compare offerings that they may wish to install on their newbuildings. The Asian makers are usually already well connected with their local shipbuilders and can count on their support sufficiently so as not to need the direct patronage of European operators. If Asian equipment makers are not as well-known as their European counterparts it does not mean that they have little to offer. As an example, it may be that with some recent signatures, the 2004 Ballast Water Treatment Convention may soon come into effect. If it does then there will be many Asian-based system makers that will be in a position to benefit. The table of systems in the ShipInsight Ballast Guide includes makers from no less than 17 countries of which four – China, Japan, South Korea and Singapore – are Asian. Between them the Asian makers account for around 60% of the number of systems on the market. That does not suggest that they have a commensurate share of sales although it may well be the case. Certainly some of those makers have had successes; South Korean maker Techcross’ Electro-Cleen system can lay claim to being one of the very first systems to get type approval and Chinese maker Headway Technology’s OceanGuard system has gained acceptance in a number of sectors including the cruise sector and has completed land based tests under the US type approval process. Several of the systems have been developed by shipbuilders and would therefore appear to have a secure market when the convention comes into effect. Most of the pumps and filters that will be used in Asian ballast treatment system will be of local manufacture. There are many pump makers whose products will be found in most of the fluid movement systems on Asian-built vessels. Their names may not be familiar to European operators but one pump maker that is well-known is Japanese cargo pump maker Shinko. It has around 70% of the market in cargo pumping systems on crude oil tankers and although it has lost some market share to other makers, that is mainly due to the increased number of tankers ordered and limits on Shinko’s manufacturing capability. Another area where Asia appears to play second fiddle to the west but actually has its own strengths is in the vital area of propulsion power. For the west, MAN Diesel & Turbo and Wärtsilä may be the first names that come to mind in this regard with Caterpillar MaK, Rolls-Royce, MTU and ABC also likely to come up. Against these Asia can field a smaller number such as Mitsubishi, Himsen, Doosan and Niigata and now that Wärtsilä has sold a major stake in its two-stroke operation – Winterthur Gas & Diesel (WinGD). However, because most two-strokes are built under license and the licensees are mostly Asian companies, Asia actually produces the majority of marine engines. A report issued in April last year suggested South Korea, Japan and China enjoy about 80% share of the global marine diesel engine market with South Korea and Hyundai Heavy in particular heading the low-speed marine engine market, while Japan and China are leaders in the medium-speed marine engine market. Hyundai Heavy Industries world leading position in engine production is mostly achieved with engines built under license but its proprietary HiMSEN Engine (Hi-touch Marine & Stationary Engine) medium-speed is growing in importance. There is also a newly developed dual-fuel variant which has been shown at some exhibitions this year. Japan’s Mitsubishi Heavy Industries – Marine Machinery and Engine (MHI-MME) is a very poor third to the big two in terms of numbers of two-stroke engines produced but its products are popular with local operators and sell in reasonable numbers. MHI-MME’s UE range of engines has been in continual development since its introduction in 1955. Latest developments are designed to improve fuel consumption and efficiency and include solutions that combine a UE engine with MHI-MME MET Turbochargers (hybrid MET, VTI) and the MERS (Mitsubishi Energy Recovery System) waste heat recovery system, enabling significant savings in fuel consumption and improved operating efficiency during slow steaming. MHI-MME has another marine power source in the UST ultra-steam turbine. All current production for the marine market is to be found in LNG carriers and is enjoying something of a renaissance after a period when diesel and dual fuel engines had become the favoured power source. A pair of Sayaringo STaGE design LNG carriers being built for NYK will feature the UST in a hybrid propulsion system that combines it with gas-fuelled engines, the MERS waste heat recovery system and a dual-fuel diesel engine to drive the electric propulsion motor. China has seen a rapid expansion in its engine production led by the likes of Hudong Heavy Machinery, CSSC-MES Diesel, Dalian Marine Diesel, Yichang Marine Diesel Engine, and Qingdao Haixi Heavy-duty Machinery. In 2014, the five companies boasted total capacity of low-speed marine engines up to 8.5 million bhp. Hudong Heavy Machinery is the largest manufacturer of engines in China and produced 194 marine diesel engines with 4.1 million bhp in 2014 and In January 2015, delivered the world’s first SCR system applied to WinGD’s low-speed engines At the same time, medium-speed marine engine enterprises represented by CSSC Marine Power and Shaanxi Diesel Engine Heavy Industry have also grown. Wärtsilä runs four marine diesel engine joint ventures in China; Shanghai Wärtsilä Qiyao Diesel Company, Wärtsilä Nantong, Wärtsilä Yuchai and WinGD which is a joint venture co-founded by Wärtsilä (holding 30% stake) and CSSC (70% stake). No round up of Asian marine technology could ignore the fact that the region also has companies that produce navigation equipment, electronics and communication systems. As well as a number of ECDIS makers, the most well-known are probably Furuno and JRC. Both have worldwide operations and sales and are as well known to European operators as they are to local owners.