Port Security Conference

May 12, 2003

World shipbuilding difficulties grow
The difficulties in world shipbuilding are growing, as evidenced by a further decrease in orders for new vessels in the major shipbuilding regions in 2002, says the European Commission in its seventh report to the European Council on the situation of the world shipbuilding market.

Under Council Regulation 1540/98 establishing strict rules on aid to shipbuilding, the Commission is required to report on the situation of the world shipbuilding market. These reports analyze the latest developments in the world shipbuilding market and assess the results of the actions undertaken.

This seventh report, which completes the Commission's analysis of the shipbuilding market in 2002, attributes the slow market to past over-supply, slowing economies around the world, the effects of 9/11 and political insecurity in the Middle East.

The report finds that the most important market segments for EU yards developed negatively. For EU producers, order intake in 2002 was down by over 50% compared to 2001 and over 70% compared to 2000. As a result, EU shipyards are now rapidly running out of work and a number of bankruptcies and lay-offs have already occurred. The overall market share of EU shipyards has dropped to 7%, from 13% in 2001 and 19% in 2000.

Enterprise Commissioner Erkki Liikanen said: "When looking at the full picture for 2002, we have to recognize that the situation in the world shipbuilding market is not improving. The latest report demonstrates the slowdown in the industry over the last two years and once again confirms that the difficulties that unfair trading practices create for EU yards are becoming critical. The Commission, which has already taken action to defend the EU shipbuilding industry against unfair competition, will continue its efforts, together with industry, to enhance the competitiveness of EU yards, as initiated by the LeaderSHIP 2015 initiative."

LeaderSHIP 2015 was launched by a high level Advisory Group in January 2003. A comprehensive strategy plan, currently being developed by industry representatives and the Commission, will be reviewed by the Advisory Group in July, with the aim of implementing the first concrete and effective measures before the end of the year.

The Commission reports that world-wide, orders for new ships in 2002 were over 12% down on 2001, after dropping over 20% in 2000-2001. Worst affected are containerships and cruise ships, but demand is also lower for crude oil tankers and LNG carriers. Demand has increased only in the product tanker segment, due to replacement needs stemming from new EU maritime safety legislation, and in the bulk carrier segment, where new design rules and domestic demand in Japan and China are creating some business for shipyards.

Ship prices hit new lows in 2002, close to 1989 levels. Yards in South Korea have further lowered offer prices, despite strong increases in all major cost factors and the appreciation of the Korean currency, in order to trigger fresh demand and cope with competition from China.

Increasingly, asserts the report, Korean yards have had to focus on the available demand for oil and oil product tankers, despite earlier statements that these market segments are no longer attractive for Korean shipbuilders due to the low value of those ships and the fading cost competitiveness of Korean producers.

The Commission asserts that its detailed cost investigations for orders placed with South Korean yards confirm the findings from previous reports, namely that ships are offered at prices that do not cover the full costs of production. In particular inflation and financing costs are not factored in. The investigations show that the gap between offer prices and calculated normal price is again widening.

In June 2002 the Council took a decision on how to combat distortion of competition in the shipbuilding market. Korea was given another opportunity to come to a bi-lateral agreement by September 30, 2002. Ministers agreed that failure to reach such an agreement would automatically trigger a WTO trade complaint and the authorization-- through a "Temporary Defensive Mechanism"--of direct aid of up to 6% to EU shipyards for the construction of up to three ship types. These are container ships, certain specialized tankers and LNG carriers although the latter type has first to be confirmed through an updated investigation under the Trade Barrier Regulation.

In line with the Council decision, the Commission undertook to engage the Korean side in another round of talks. These talks failed in October 2002, without any indication that positions were narrowing. The Korean side, says the Commission failed to confirm the principles laid down in "Agreed Minutes" of June 2000, in particular to make efforts to assure that Korean yards price ships at a level that reflects all cost factors.

The request for dispute settlement was filed with the WTO on October 21, 2002, and within the EU, direct aid to shipyards can now be authorised as specified in Council Regulation No. 1177 of 2002, the so-called Temporary Defensive Mechanism.

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