European Economic and Social Committee European Economic and Social Committee Consultative Committee on Industrial ChangeConsultative Committee on Industrial Change

European Shipbuilding Dealing with the Crisis

Reinhard Lüken

Vigo, 1 December 2009

Introduction of CESAIntroduction of CESA

CESA originates in 1937

16 Member countries

> 99% EU production

> 300 Shipyardsturnover in bill. €

16 merchant10-15 naval3-5 maintenance,

repair & conversion

> 100.000 direct jobs

Production and Orderbook ValuesProduction and Orderbook Values(merchant newbuilding only)(merchant newbuilding only)

Source: CESA

Source: CESA

• Deep crisis impact on global maritime sector Deep crisis impact on global maritime sector • Shipbuilding in Europe successfully restructured Shipbuilding in Europe successfully restructured

into high-tech niche player with growth prospectsinto high-tech niche player with growth prospects• Key contributions to EU 2020 Key contributions to EU 2020 • Late cycle industry – 2010/2011 problems will riseLate cycle industry – 2010/2011 problems will rise• Acute unprecedented challenge to critical massAcute unprecedented challenge to critical mass• EU must respond to global market distortionsEU must respond to global market distortions• Need decisions before summer 2010!Need decisions before summer 2010!• Proposals serve multiple policy objectivesProposals serve multiple policy objectives

Key MessagesKey Messages

Quarterly New Orders by Shiptype Quarterly New Orders by Shiptype

Sou

rce:

Lloyd

’s R

eg

iste

r-Fa

irp

lay

0

2500

5000

7500

10000

12500

15000

17500

20000

22500

Q 1999 Q 2000 Q 2001 Q 2002 Q 2003 Q 2004 Q 2005 Q 2006 Q 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009

000

CG

T

Tankers Bulk Carriers Containerships and other dry cargo

Gas Tankers Ferries / Passenger Ships Other Non Cargo Vessels

(Average quarter 1999-2007)

Supply and DemandSupply and Demand

Source: Clarkson´s Forecast 2009

World Fleet and OrderbookWorld Fleet and Orderbook

Source: Lloyd’s Register-Fairplay

Fleet vs. Orderbook

44%43%

29%24%

23%19%

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

1,100,000

1,200,000

1,300,000

2003 2004 2005 2006 2007 2008

in 1.000 GT World Fleet Orderbook %

Fleet & Orderbook by ShiptypeFleet & Orderbook by Shiptype

14%

32%

1%

15%

30%

25%

47%

68%

39%

0 50.000 100.000 150.000 200.000 250.000 300.000 350.000 400.000

Tankers

Bulk Carriers

Containerships

Other Dry Cargoes

Gastankers

Ferries / Passenger Ships

Fishing

Offshore Activities

Other NON Cargo Activities

in 1 000 GT

Fleet Orderbook

Capacity ExpansionCapacity ExpansionProduction Index (cgt basis)

0

100

200

300

400

500

600

700

800

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

1999=100

China South Korea Japan CESA

Focus on High-end ShipsFocus on High-end Ships

European Results: Value vs VolumeEuropean Results: Value vs Volume

Source: CESA

0

2.000

4.000

6.000

8.000

10.000

12.000

14.000

16.000

18.000

20.000

2005 2006 2007 2008

Tu

rno

ver

in 1

00

0 €

0

1.000

2.000

3.000

4.000

5.000

6.000

7.000

8.000

9.000

10.000

Vo

lum

e in

dw

t

Turnover in EURProduction in DWT

New Orders and Production in EuropeNew Orders and Production in Europe

Source: CESA

0

3.000

6.000

9.000

12.000

15.000

18.000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 FY 2009

1.00

0 C

GT

orderbook new orders deliveries

Possible orderbook correction by end of 2009

• Capacity utilisation: 80% in 2010 and 50% in 2011Capacity utilisation: 80% in 2010 and 50% in 2011• No action will help without new orders!No action will help without new orders!• Numerous bankruptcies alreadyNumerous bankruptcies already• Almost 20% of jobs affected in 2009 Almost 20% of jobs affected in 2009

– 2010 will be worse!– 2010 will be worse!• Impact on suppliers evident but more difficult to Impact on suppliers evident but more difficult to

documentdocument

Crisis ImpactCrisis Impact

• Global (not only European) shipbuilding is among Global (not only European) shipbuilding is among the worst hit industriesthe worst hit industries

• Late-cycle sector is a political challengeLate-cycle sector is a political challenge• Paradoxically, Europe is more affected despite the Paradoxically, Europe is more affected despite the

superior markets (balance of supply & demand)superior markets (balance of supply & demand)• Critical mass is a major concern for allCritical mass is a major concern for all• Europe could lose the capability to construct Europe could lose the capability to construct

complex maritime hardwarecomplex maritime hardware

Crisis ImpactCrisis Impact

• Role model; also for European Crisis response?Role model; also for European Crisis response?• Oriented towards future competitiveness (not Oriented towards future competitiveness (not

structural conservation) structural conservation) • Action package in line with other policy objectivesAction package in line with other policy objectives• Short term & medium-long term measures: Short term & medium-long term measures:

1.1. Access to pre- and post delivery Access to pre- and post delivery financingfinancing for viable and for viable and feasible projectsfeasible projects

2.2. Active stimulation of Active stimulation of demanddemand - replacement of aging and - replacement of aging and environmentally unfriendly vesselsenvironmentally unfriendly vessels

3.3. New ways to restore and defend a New ways to restore and defend a level playing fieldlevel playing field

4.4. New forms of innovation collaboration for New forms of innovation collaboration for green green technologytechnology

LeaderSHIPLeaderSHIP

Shipbuilding Price EvolutionShipbuilding Price Evolution

Source: Clarkson

Monthly Newbuilding Price Index

80

100

120

140

160

180

200

220

Jan-00

May-00

Sep-00

Jan-01

May-01

Sep-01

Jan-02

May-02

Sep-02

Jan-03

May-03

Sep-03

Jan-04

May-04

Sep-04

Jan-05

May-05

Sep-05

Jan-06

May-06

Sep-06

Jan-07

May-07

Sep-07

Jan-08

May-08

Sep-08

Jan-09

May-09

Sep-09

Jan

2000

=100

in $ in € in Won in Yen in Yuan

5

Steel and Ship and Prices EvolutionSteel and Ship and Prices Evolution

Source: MEPS, Clarkson's

Steel and Ship Price Indexes

0

50

100

150

200

250

300

350

2003 2004 2005 2006 2007 2008 Sep* 2009

2003=100 Steel Clarkson s Prices

Newbuilding price war startsBrokers say some of the smaller yards are aggressively marketing capesize contracts at low price

Asiasis, October 2009

Price war? Price war?

“Shipbuilders may be drawn

into a global price war next

year triggered by South Korean

discounting”

Bloomberg 28.08.2009

« Recent order-intake for the construction

of 50,400-dwt tanker octet (options for

four units included), worth $340m

($42.5m per ship), has caused price

controversy » Asiasis June 2009

« At their peak in 2008, Capesize prices

went up to a record-high $110 million in a

deal made by a major Korean builder for

delivery in 2010. Just over a year from then,

the prices have come closer to half

their peak levels » Kaiji Press, October 2009

“newbuilding price in line with current Clarkson

Newbuilding Price Index not being accepted

by South Korean large shipbuilders”

New Ships, June 2009

“shipping ministry surprised by

offer to build two dredgers at half

the price“

New Ships, November 2009

WTO rules have shown to be ineffectiveWTO rules have shown to be ineffective

OECD process doubtfulOECD process doubtful

Council Regulation on Injurious Prices from 1996Council Regulation on Injurious Prices from 1996

Support action in many countries:Support action in many countries:

• China – estimated at ~ 30bn $China – estimated at ~ 30bn $

• Korea – estimated at ~ 20 bn $Korea – estimated at ~ 20 bn $

• Domestic support programmes in Russia, India, Brasil etc.Domestic support programmes in Russia, India, Brasil etc.

• Member states provide funding to construction in Asia!Member states provide funding to construction in Asia!

EU must ensure not to lose orders to less EU must ensure not to lose orders to less competitive builders due to government supportcompetitive builders due to government support

Level Playing FieldLevel Playing Field

Aging vessel replacement programme:Aging vessel replacement programme:300 Ships – 30% more energy efficient – 3 years300 Ships – 30% more energy efficient – 3 years

New markets: off-shore wind, ocean energy, artic New markets: off-shore wind, ocean energy, artic conditions, low carbon…conditions, low carbon…

International collaboration with Russia, Brazil, International collaboration with Russia, Brazil, Canada etc.Canada etc.

Public procurement of naval and other government Public procurement of naval and other government vesselsvessels

Demand StimulationDemand Stimulation

Very challenging to acquire long-term facilitiesVery challenging to acquire long-term facilities

Member States are active – additional transparency Member States are active – additional transparency would be helpfulwould be helpful

EIB very reluctant to support the sector...EIB very reluctant to support the sector...

...existing EIB facilities could be applied, such as ...existing EIB facilities could be applied, such as Clean Transport Facility (4,5 bn € allocated to Clean Transport Facility (4,5 bn € allocated to automotive since Dec. 2008!)automotive since Dec. 2008!)

Financing Financing

The only way to succeed!The only way to succeed!

Shipbuilding Framework to be reviewed and Shipbuilding Framework to be reviewed and application to be streamlinedapplication to be streamlined

Prolongation after 2011 essentialProlongation after 2011 essential

New forms for Community funding structures (FP8)New forms for Community funding structures (FP8)

Innovation Innovation

Safeguard employment and capabilities are the key Safeguard employment and capabilities are the key objectiveobjective

Employment measures are mainly at national levelEmployment measures are mainly at national level

Member States to be encouraged to provide full Member States to be encouraged to provide full supportsupport

Social Dialogue committee will work with the EC to Social Dialogue committee will work with the EC to explore possible application of Community explore possible application of Community instrumentsinstruments

Employment Employment

+++ Thank you for your attention ++++++ Thank you for your attention +++

more info atmore info at

http://www.cesa.euhttp://www.cesa.eu