Ministry of Land, Infrastructure, Transport and Tourism

Current status of the shipbuilding

industry and its susceptibility to

distortion

Ministry of Land, Infrastructure,

Transport and Tourism (MLIT), JAPAN

1.Current status of the shipbuilding market

2.Susceptibility to distortion

3,4203,392

2,753

1,819

1,4291,310

1,6931,6821,5911,8331,816

1,685

1,2261,0911,324

1,5891,6101,863

2,0541,967

2,265

2,5842,5542,5462,782

3,1703,1293,338

3,613

4,0174,697

5,212

5,732

6,769

7,707

9,643

2,851

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

6,000

6,500

7,000

7,500

8,000

8,500

9,000

9,500

10,000

1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

'0000GT

A Calender Year

Others

China

Europa

Korea

Japan

At Peaknote1. D ata Source : Lloyd's R esister.

2. Ship Size C overage : 100 G ross Tonnage and over.

Current status of the shipbuilding industry

World completions

2012: Data as of 1st Quarter

World new orders

Current status of the shipbuilding industry

1,3851,323 1,148823

1,6911,9091,687

1,119

1,942

1,5581,2911,266

1,3771,184

1,9312,407

1,991

1,280

2,2652,5352,553

2,341

3,648

2,6742,894

4,609

3,650

2,880

7,4007,720

6,000

9,960

16,483

8,800

3,360

8,240

5,334

793

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

12,000

13,000

14,000

15,000

16,000

17,000

1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

'0000GT

A Calender Year

Others

China

Europa

Korea

Japan

(At Peak )(note)1.D ata Source:JSEA report based on LR until 1994. Lloyd's R esister "W orld Shipbuilding Statistics" from 1995

2. Ship Size C overage : 100 G ross Tonnage and over2012: Data as of 1st Quarter

World orderbook

Current status of the shipbuilding industry

3,463 3,5312,917 3,262 3,069 2,586

2,136 2,254 2,4553,106

3,979 4,316 3,733 3,9244,579 4,853 4,531

5,662 5,739 5,887

7,5797,110 7,492

11,219

14,621

16,402

20,888

32,973,

36,807

30,051

26,102

2011, 21,696 2012, 20,970

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

22,000

24,000

26,000

28,000

30,000

32,000

34,000

36,000

38,000

198019811982198319841985198619871988198919901991199219931994199519961997199819992000200120022003200420052006200720082009201020112012

'0000GT

A Calender Year

Others

China

Europa

Korea

Japan

note1D ata Source : Lloyd's R esister.

2Ship Size C overage : 100 G ross Tonnage and over

(At Peak )2012: Data as of 1st Quarter

3,650

2,880

7,400 7,720

6,000

9,960

8,800

3,360

8,240

5,334

0

2,000

4,000

6,000

8,000

10,000

12,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

0000GT 16,483

China Korea Japan EU Others

3,129 3,338

3,560

4,040

4,697

5,212

5,732

6,769

7,707

9,643

10,150

0

2,000

4,000

6,000

8,000

10,000

12,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

0000GT

Data source: Lloyds Register and Clarkson

New orders Completions

6

China

Korea

Japan

EU

Others

Future prospect for Supply-Demand gaps

Significant Gaps

Current status of the shipbuilding industry

What is market distortion?

Definition of market distortion by Worldyards

Actions aimed at either the supply side or the

demand side that would result in a shift in the

supply and demand curves that would otherwise

be expected absent those actions.

Examples of government measures (C/WP6(2012)15, page 7)

Supply side : debt forgiveness for builders, direct

subsidies to shipbuilders

Demand side: locally built requirements

These aim to increase the demand,

i.e., the number of vessels for home shipbuilders.

Why do governments intervene?

Examples (OECD WP6 report, Factors affecting the structure of the world shipbuilding industry, November 2007)

- Employment generator

- Contributor to industrial capacity

- Strengthen technical and technological capability

- Defence Capability

- Investment Vehicle

Shipbuilding as a strategic industry capable of

delivering public policy outcomes

Why do governments aim to increase the number of

vessels for home shipbuilders?

Is shipbuilding more, or less, susceptible to distortions

than other industry sectors?

[Sub-questions]

Is shipbuilding likely to be an industry that

governments are inclined to support?

The answer depends on the recognition of governments on how

important the shipbuilding industry for their countries.

Do government measures supporting for the

shipbuilding industry have impact on the world

shipbuilding industry?

It may depend on scales and types of measures taken, but

considering the global nature of the industry, consequences of

such measures are likely to be global even if the measures are

implemented locally.

Discussions

How susceptible is the shipbuilding industry to distortions?

Do regular boom-bust cycles exacerbate the risk of

distortions in the market?

If there is overcapacity in the industry, can this act as a

catalyst for distortion in the market?

Yes. Boom-bust cycles contribute to occurrence of significant gaps

between supply and demand of ships.

When this happens, in particular in case of overcapacity,

governments may consider supporting measures to increase the

demand for their home shipbuilders.

What is the likelihood of market distortion given current

economic circumstances?

It depends on the magnitude of the gaps and governments

recognition on the importance of the shipbuilding industry.

Lets see what happened in the past.

Discussions

Past shipbuilding recessions

Transition of the world shipbuilding industry

0

20000

40000

60000

80000

100000

120000

140000

160000

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990

Year

Orderbooks Completions New Orders

New Orders, Completions(1000GT)

Orderbooks

(1000GT)

1st

Oilshock

2nd

Oilshock

1st Curtailment

of the capacity2nd Curtailment

of the capacity

Past shipbuilding recessions

Chronological Table of Actions taken Market

InternationalDialogue

With in Japan

1950s 50% share of the world shipbuilding market

1973

1st Oil Crisis - Sharp fall of tanker market - extremely glutted market - extreme price competition

19741975

1976'General Guidelines ForGovernment Policies in theShipbuilding Industry' (OECD)

19771978

19791st Curtailment of theshipbuilding facility (37%)

198019811982

1983Amendment of the GeneralGuidelines in 1976 (OECD)

19841985 Plaza Accord19861987

19882nd Curtailment of theshipbuilding facility (23%)

1989

extremely glutted market

The beginning of rapid development of the shipbuilding industry

Friction betweenJapan and Europe

Instruction of the export price

'Handy Bulk boom'

2nd Oil Crisis 'Mini boom' in the dry cargo market

Operation

control

Operation

control

Recession

Recession

World market share

Year 1979

Goal of world supply reduction

World market share

JapanEurope

Common understanding of necessity for restructuring policy

Japan

Capacity reduction

by government initiative

Europe

Subsidy reduction by EU

Year 2011

Common understanding of sustainability

for the world ship building industry

How?

What?

Past shipbuilding recessions

Korea 35% Japan 19%

China 39% EU 2%

Summary

There are and will be significant gaps between supply

and demand in the shipbuilding industry.

Huge gaps provide strong interests for governments to

take measures to support the industry.

Measures targeting on demand side are likely to have negative

global market distorting impacts and delay the market

adjustment to imbalance of supply and demand.

Compared to the past recession, major shipbuilding

countries had changed: Now, China, Korea and Japan.

For China and Korea, this will be a first time to face such severe

overcapacity.

Ministry of Land, Infrastructure, Transport and Tourism

Thank you for your kind attention.