|Posted on Sunday, September 17, 2000 - 03:46 pm: |
How to raise the Titanic
Britain may never again rule the waves, but there is hope in the shipyards, says Oliver Morgan
Sunday July 16, 2000
British shipbuilding led the world a century ago. In 1914 it employed 200,000 people, building vessels for the biggest merchant and military fleets to sail the seven seas. Yet today the UK yards employ 26,000 people, building between 25 and 30 cruise ships, specialist and naval vessels a year - all told, a mere 2 per cent of the global market.
British shipbuilding has been in crisis for decades, but in the past few years its very survival has been questioned. Once-great shipyards have changed ownership numerous times as attempts to find a formula to reinvigorate the industry have come and gone. Cammell Laird in Birkenhead closed in 1993, and was later bought by a ship repairer rather than a builder. Swan Hunter on Tyneside is now owned by a Dutch entrepreneur who advocates making Ikea-style 'kit ships'.
Last year the Government was forced to make desperate efforts to find a buyer for the Clydeside Govan yard when Norwegian owner Kvaerner pulled out. And earlier this year the failure of Belfast-based Harland & Wolff to win the £450 million contract to build a new Queen Mary led to redundancy notices for its 1,300 workers, though another order later kept the yard open.
In the eyes of the industry it was not before time that the Government last Thursday added shipbuilding to car makers and textiles as a sector worthy of a summit meeting with Ministers.
But the idea of state involvement will have caused queasiness for some. Intervention has been tried before - without success. It followed the 1967 Geddes report, which called for the creation of big yards such as Govan and Swan Hunter. Then there was the 1977 decision that 'lame ducks' needed propping up by the Shipbuilding Intervention Fund (SIF). Nationalisation in the same year has been widely blamed for the present problems. Whether or not this is fair, current UK shipbuilders say the Government has a vital role to play now - though not to prop up lame ducks.
Nick Granger of the Shipbuilders and Ship Repairers Association says: 'We are looking to double the market share of UK yards in international merchant work, which accounts for about £550m of the industry's current £2bn turnover. A lot of this we have to do ourselves, to be competitive. But there is a lot of unfair competition in global markets, and that is where the Government has got to help.'
The future for the UK, says Granger, is as a producer of high-value 'niche' vessels - cruise liners, ferries, cable-layers and ships for offshore industries. But in an international market with, according to the Organisation for Economic Co-operation and Development, 30 per cent overcapacity, the UK, like continental Europe, is long dead as a producer of volume shipping - tankers, container ships, bulk carriers. It has been blown away by competition from the Far East.
Much of Asia's shipbuilding is done by South Korean yards, which, says Granger, are heavily subsidised. Last year South Korea had 29.4 per cent of the world market - up from 20 per cent in 1995. Its expansion has been at the expense of Japan and Europe.
In 1950 the UK still had 37.9 per cent of the global gross tonnage, though in reality the industry has been declining since 1918. Historically, Britain has been slow to innovate - missing out, for example, on the tanker boom of the Thirties - and slow to invest in new technology such as welding. Strategy was also lacking. While continental industries were marshalled so that production was more carefully allocated between builders, and export markets groomed, UK builders kept close to UK ship owners, often not seeking work abroad.
Poor management and industrial relations meant British shipbuilding became ever more vulnerable. Government subsidies date from as far back as the Depression.
Despite all that, Granger now argues that the worst is over. First, demand for ships is strong. Obsolescence and growth in trade has raised demand by around 3 per cent a year, and it is now reaching its highest levels since the last peak, in 1975.
He says that of the 2,600 vessels over 100 tonnes produced a year, 2,000 are in the classes of ships at which UK yards excel. The vessels are worth more because their specifications are higher.
Underpinning this is Royal Naval work, which accounts for the lion's share of the yards' £2bn turnover. Last week, for example, the Government placed a £1bn order for three destroyers with BAe systems and Vosper Thorneycroft, securing 5,500 jobs.
In addition, UK yards such as Cammell Laird specialise in higher-margin repair work. This, says Granger, represents £350m of the £550m merchant shipping turnover.
Cammell Laird's deputy chief executive, Brett Martin, says: 'Life is very difficult. The Koreans are able to build ships at low rates, and other European countries are cleverer about subsidies. We have to specialise.'
Cammell Laird last week announced a 53 per cent rise in annual profits. It is buying yards in France and the US and is also building ships again, winning a £8m order for ferries from Norway.But Martin believes much has still to be done to improve the position of UK yards. He believes contracts should not be assigned to single yards. Cammell Laird has made a joint bid with Harland & Wolff for a £200m Ministry of Defence contract for six landing craft.
His view is shared by Jaap Kroese, the Dutch entrepre neur who bought Swan Hunter five years ago for £4m. Kroese advocates more prefabrication of vessels, allowing different yards to work on different parts of the same vessel simultaneously. Costly equipment should be pooled, some at a newly equipped yard financed by all major companies, so that expensive tasks could be performed centrally.
At the cutting edge of this would be the standardised 'kit ships' which he believes could revolutionise design and production, slash costs and take on the Asian firms.
'I would not be here if there was not a future,' Kroese says. 'But there is an efficiency problem in the UK, compared with Dutch and German yards. There should be greater collaboration between UK yards.'
Granger estimates that a 20 per cent improvement in productivity is needed to compete even with Dutch, German and Italian yards. The high pound has not helped, but they can typically undercut UK quotes by 5 per cent.
There are signs of optimism though. For example, after its disappointment in March, Harland & Wolff won a £300m ferry order and a £230m cruise ship contract. And Swan Hunter recently built a dry dock in which to build a new generation of aircraft carriers.
But the industry says the Government must now tackle the unfair competition created by state subsidies to overseas yards. Alan Robson, head of the Confederation of Shipbuilding and Engineering Unions, want Britain to have these payments stopped, or give handouts of its own.
The focus of the problem is South Korea, he says. 'They are subsidising vessels to the extent that they are made at 20 per cent below cost.' Granger says a 300,000 tonne supertanker can be built in South Korea for $72.5m.
'Knowing what we do about steel, labour and capital costs,' he says, 'there is no way that can be done. [The real price] has got to be around $100m.'
Research for the European Commission shows that in 1993 while world orders increased, prices did not. At the same time South Korean order books almost doubled to 20 million tonnes of shipping. Yet fighting back is tricky. Subsidies are hard to identify. The World Trade Organisation's anti-dumping laws are difficult to apply to ships.
The European Commission made the Korean yards promise earlier this year that the subsidies would end, but scepticism remains over whether the promises will be kept.
And it is not just Korea. Robson says that European governments also subsidise their yards - and this is an even murkier area.
The EU allows subsidies of up to 9 per cent of the value of a shipbuilding contract, and 4.5 per cent for repairs. Britain already applies this liberally , but UK yards claim the continental countries are are cannier.
Robson says: 'State-owned Italian steelmakers deliver late to private yards, triggering penalties which are effectively then subsidies. And financial institutions give yards soft credits to finance building projects.'
The Commission is proposing the end of the 9 per cent rule by next year, but the British yards want the UK to argue hard for it to stay.
With greater fairness and an increase in productivity, the UK industry believes it can do what it has not done for 100 years. Grow.
Lifebelts for a drowning industry
Harland & Wolff:
Belfast: £300 million design and construction of four roll-on roll-off ferries for Bahamas-based Seamasters. Letter of intent received for £230m luxury cruise vessel for US cruise line Luxus.
Tyneside/Teeside: £8m to build two ferries for Norwegian owners Torghatten Trafikkselskap.
Merseyside: £50m conversion on Italian cruise ship Costa classica , £1m uprgrade of RMAS Newton , £1m general repairs, other work in Gibraltar.
North-East: Bidding on Ministry of Defence ALSL landing craft with BAE Systems and primary casualty receiving ship. Bidding for contract work on aircraft carriers and future surface combat craft.
Barrow: Auxilliary oiler, 3 Astute class submarines, 2 amphibious assault ships, reactivation of four upholder class submarines.
Scotstoun: Completion of Type 23 frigate, three offshore patrol vessels for Brunei, two Type 45 destroyers.
Govan: Auxilliary oiler.