Evolution

The Antipodean Mariner was standing on a hill, overlooking a bustling South East Asian shipyard. Despite the current gloom in the shipbuilding industry, the Yard is new, employs 25,000 workers and has a three year order book of ships.



In a reflective moment, AM wondered whether anyone stood on a hill overlooking Newcastle, Sunderland or Glasgow and foresaw the abandoned wastelands they have become?


Photo credit: thorburn/Flikr

In the First World - shorthand for Europe, USA and even parts of Japan - shipbuilding is a sunset industry. Low barriers to entry, exchange rate appreciations, wage expectations and the demise of heavy manufacturing has left just a handful of Yards, in specialist niches, capable of building competitively priced ships. At the risk of grossly generalising the issue, the post-WWII shipbuilding boom was driven by the recapitalisation of the global fleet using labour desperate for work after the privations of war.

The demand for shipping, driven by China's economic development, has resulted in an intra-Asian shift of dominance from Japan to China, Vietnam and the Philippines. Korea to a large degree has managed to retain its competitive position due to a shift into a higher value product and controlling wage expectations. Taiwan has been through the complete evolutionary cycle from emergent shipbuilder to oblivion in a space of thirty years. The survivors in Japan and Korea have in part succeeded through a relentless quality drive to measure and improve productivity per worker at a rate faster than their wage cost rises.

With China now positioned as the economic savior of the world, the AM wonder how long it will be before Yards reliant on low cost labour are drawn into the death spiral of increasing wage costs and flat-lining productivity. Despite the similarities with the aviation sector, shipbuilding will never see consolidation like the Boeing and Airbus duopoly. The barriers to entry are too low and, despite WTO rules, state intervention and protection remains prevalent.

The evolutionary cycle is shortening, despite the massive capital investment required to develop a productive shipyard. With the professionalisation of the Chinese workforce, the last remaining pool of low cost labour is the Indian subcontinent. The AM wonders whether in his lifetime he will see Asian shipyards closing down to make way for apartments, shopping malls and call centres.

AM