How are competitors reacting to the mergers?
Sooner or later, the industry should start preparing to see more country-based consolidation deals take place. “These are challenging times for shipbuilding, newbuilding prices are low, new orders have dried up,” explains Kumar. “Margins have grown thinner and many yards are struggling to stay afloat. Many proposals are on the drawing board. We should not be surprised if we see more of them.”
After all, he continues, these initiatives are not a new phenomenon in shipbuilding. “In 2012, a number of Japanese shipyards came together to form Japan Marine United,” he says. “With four of the biggest shipyards on their way to become two, Japanese shipyards will be under pressure to consolidate.”
Indeed, Japan did not waste any time and in November last year, Japan Marine United and compatriot Imabari Group announced plans to form an alliance. According to VesselsValue data, Imabari controls about 5% of the global shipyards’ order book by the number of orders and 6% by their value. The union would be responsible for an estimated 10% of the international shipbuilding business.
Such a reaction is hardly alone, says Rahul Kapoor, vice president at information provider IHS Markit, who adds: “In a challenging environment for shipyards and to be a globally competitive supplier, a super yard is the only way forward.”
A vocal opponent is Singapore, which recently launched an in-depth review of the HHI-DSME deal. “The parties are currently two of the largest suppliers for the global supply of LNG carriers, and possibly large container ships and large oil tankers,” the Competition and Consumer Commission of Singapore said in November 2019. “There are concerns that the proposed transaction will remove competition between two main suppliers of these commercial vessels, to the detriment of customers in Singapore.”
Yet Kapoor believes this probably won’t be the only reaction we’ll get from Singapore. “It is not at all surprising that Singapore is reacting to the consolidation taking place in yards in South Korea and China,” he says. “A combination of Singapore yards is certainly on the cards in the not-so-distant future.”
As for the remaining portion of competitors, the European Union is also currently undertaking an in-depth investigation into the merger on the grounds of reduced opportunities in cargo shipbuilding.
Nevertheless, the NTNU’s Arnulf Hagen says: “European yards have long been outcompeted in the market for bulkers, tankers, and container ships, mainly now producing cruise vessels, ferries, as well as fishing vessels and specialised vessels for the offshore industry and renewable energy sector.”
Order numbers are therefore unlikely to be significantly damaged by the mergers, but they are still likely to affect prices in the coming years. “Prices of shipbuilding steel are far lower in Asia than in Europe, partly a reason for the decline of the steel-intensive shipbuilding in Europe and this benefit may in time trickle over into other segments making these yards also competitive in the cruise market, a business Asian yards still haven't penetrated,” he concludes.