2001 Maritime

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May 2, 2001

EC says Korean shipbuilders still pricing below cost
Korean shipyards are still distorting the international market by pricing ships below cost, according the European Commission's fourth report on the situation in world shipbuilding, adopted today.

The report can only strengthen European shipbuilders' resolve to bring a WTO case against South Korea. The Commission has said it will support such a move and its now seems certain, that pending resolution of the WTO action, European governments will be permitted to grant selective subsidies to counter South Korean price cutting.

Based on the latest detailed costings of orders placed with South Korean yards, the report finds that, despite record worldwide demand for new ships last year, serious difficulties continue to affect the EU shipbuilding sector as a result of unfair trading practices by South Korean competitors.

The report notes that the year 2000 saw a significant expansion in orders for new ships, with 56 % more orders being placed than in 1999.

Most of this increase, triggered by an expanding world economy, higher oil prices and historically low ship prices in certain market segments, has benefited South Korean yards, which again increased their market share. EU yards have also benefited from stronger demand, mainly for cruise ships, a sector where Korean yards offer no direct competition.

In 2000, South Korea consolidated its position as the world's largest shipbuilding country, accounting for more than 35 % of all tonnage ordered worldwide.

The Commission will continue its market monitoring and cost investigations and present a fifth report in the second half of 2001. In the meantime, the Council of European Industry Ministers, meeting on May 14 & 15 in Brussels, will consider the Commission's report.

The market share for the EU shipbuilding industry remained stable in 2000 as losses in some market segments were compensated by additional orders for cruise ships. Half the volume produced in Europe in 2000 is accounted for by these ships, for which there is as yet no Far Eastern competition. However, only a limited number of EU yards produce cruise ships. The bulk of EU shipbuilding yards are still striving to compete against Asian yards on standard merchant vessels. Including cruise ships, the market share for the EU and Norway is ca. 18 %. If orders for cruise ships are excluded from the overall figures, the market share of EU yards for new orders has now reached an historic low of below 10 %.

In 2000 prices for new ships were reported to have recovered in certain market segments from the very low levels seen after the1997 Asian crisis. To gain a more accurate picture and confirmation of these reported developments, prices in South Korean shipyards have been monitored on a contract by contract basis. The analysis clearly shows that the upward trend in prices seen in late 2000 was not sustained, leading to the conclusion that overall price levels have not in fact recovered and are still significantly lower than before the Asian crisis of 1997.

There are no indications that Korean shipbuilders managed to raise price levels across the board, as repeatedly announced by Korean sources. Therefore the Commission maintains its view that significant over-capacities in South Korean shipbuilding, combined with an ongoing need to generate new orders in order to assure sufficient cash flow, are preventing a recovery of prices and the market in general.

Since the Commission's last report, seven more detailed cost investigations for orders placed in Korean yards have been undertaken. In no case has it been concluded that any of the contracts examined has been priced at an economically viable level, i.e. covering operating costs, profits and debt repayments. Losses, calculated in this way, on these newly investigated orders are 14 % on average, and there is mounting evidence that State-owned and State-controlled banks in South Korea have been instrumental in financing unviable shipyard operations.

Click here to download the full report.

Litton Ingalls gets $196.5 million LHD 8 contract
The U.S. Navy has awarded an additional $196.5 million to Litton Ingalls Shipbuilding, a subsidiary of Northrop Grumman Corporation, for the continuation of work towards the construction of an eighth WASP (LHD 1) Class large-deck, multipurpose, amphibious assault ship. This modification follows the earlier award of $49.8 million in the contract first announced in July, allowing Ingalls to develop both the contract design and the detailed engineering design for the ship's all-new gas turbine propulsion and electrical power generation systems. The first seven Ingalls-built LHD's were powered by steam propulsion systems.

Under the latest award, Ingalls will purchase long lead material, develop planning for construction of the ship, begin technical manual development for major equipment, perform additional detail design work and procure shore-based spare equipment. The contract modification includes options for later exercise by the Navy for fabricating early ship assemblies and procuring additional material and equipment. The additional value for these options is approximately $82 million.

Congress has appropriated a total of $880 million to date in design and material procurement funding for the LHD 8. This includes $460 million in a 2001 fiscal year defense appropriations measure passed last June in both houses of Congress, in addition to $420 million appropriated in 1999 and 2000.

Additional incremental awards will be made as remaining options are exercised during the calendar year, eventually leading to a ship construction contract, expected in early 2002.

"The award of additional funding for the construction of LHD 8 reflects the strong support for this ship by the Navy/Marine Corps team and the Congress," said Jerry St. Pe, chief operating officer of Litton Ship Systems. "An early start of production of an eighth ship in the class takes full advantage of an ongoing active production line at Ingalls, resulting in more efficient, more cost effective production of the ship, and savings of hundreds of millions of taxpayer dollars over the life of the procurement process," Mr. St. Pe added.

Ingalls President Dave Wright said work under the original contract has already begun and this contract will fortify continued work towards the construction of the ship.

"In partnership with the Navy, Ingalls will begin significant work in order to accommodate gas turbine propulsion for LHD 8, as well as other advance design requirements associated with the new ship," said Wright.

As the large-deck centerpiece of a Navy/Marine Corps Amphibious Ready Group, LHD's embark, transport, deploy, command and fully support a Marine Expeditionary Unit. The ships are fully capable of amphibious assault, advance force and special purpose operations, as well as noncombatant evacuation and other humanitarian missions. The ships are 844 feet long and displace 40,500 tons.

For operational support, the ship carries its own AV-8B Harrier II jets, and can carry Osprey (MV-22) tiltrotor aircraft, as well as a full range of Navy/Marine Corps helicopters, amphibious vehicles and tanks.

Additionally, the ships are fully equipped with command and control (C 4 I) systems for flagship command duty. They also have medical facilities, including a 600-bed hospital, second only to the Navy's Hospital Ships in capability.