EUROPE'S MARITIME INDUSTRIES
POWER UP FOR NEW CHALLENGES

by Nick Blenkey, Editor

Europe is not only the cradle of western civilization: it's also the cradle of much of today's cutting edge marine technology. Most of the major advances of the post WWII years have first been seen on board ships that have come out of a European shipyard. That's certainly true of the propulsion technology that sees diesel electric ships powered by sophisticated podded drives such as those pictured here on a cruise ship nearing completion at Germany's Meyer Werft.

More technical advances were unveiled at last month's SMM event in Hamburg, Germany. But away from the exhibit floor the chief topics of conversation included things like shipyard layoffs and closures and mergers and acquisitions in the marine equipment supplier base. In these days of globalization and cut throat economic competition, the advanced technology and high quality and productivity that have long been the hallmarks of European shipbuilders are no longer enough to ensure success. Just last month, for example, Denmark's Odense Lindø yard, part of the A.P. Møller-Maersk empire and generally reckoned among the world's most productive shipyards—announced impending layoffs. Elsewhere in Europe, there were question marks about what was going to happen next at Germany's HDW, currently controlled by an American bank's investment arm and news that Poland's Stocznia Sczecinska was about to emerge from bankruptcy, under a slightly new name, even as executives under its previous incarnation faced fraud charges.

These developments are all symptomatic of the mounting pressures on European shipbuilders.

Over the years, European yards have seen a not-so-gradual erosion of their share of the world market, particularly where large, basic ships such as tankers and bulkers are concerned. Their remaining strongholds have been higher-value sectors such as containerships and cruise ships. Well, the Korean yards have successfully cut into the containership market. And, post 9/11, prospects have seemed dull for a cruise sector that many saw as approaching saturation, anyhow.

Still, the cruise industry has a way of confounding the pessimists. In July, Carnival Corporation reached an agreement with Italy's Fincantieri Cantieri Navali Italiani S.p.A. for the construction of a new 110,000-ton, 2,974 passenger "Conquest-class" vessel for its Carnival Cruise Lines unit.

"Thanks to Fincantieri''s 'cutting edge' expertise in shipbuilding technology," said Fincantieri CEO Giuseppe Bono, "today the company has reaffirmed its position as a world leader in the cruise sector."

The cutting that most appealed to Carnival wasn't happening on the edge of technology but in the pencil sharpening department. At at an approximate all-in cost of $450-460 million "the attractive price offered by Fincantieri played a key role in the decision to add a fourth vessel to the series," declared Carnival

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Though cruise market prospects are brightening, European yards still need to win business in other high-value sectors. And they are starting to get orders in one area where the Koreans have been sucking in the vast majority of orders: LNG ships. Not surprisingly, these ships are one focus of the European Commission's shipbuilding dispute with South Korea.


THE ROW WITH KOREA
The European Union has now set a deadline of the end of this month to reach an amicable resolution of its long-running differences with South Korea. Failing such a settlement, it will simultaneously take steps against South Korea within the framework of the WTO (World Trade Organization) and activate a "temporary defensive mechanism" (Eurospeak for subsidies) for European shipbuilding. Competition Commissioner Mario Monti says that the "temporary support" envisaged is "not a reintroduction of the generalized operating aid of up to 9% for all shipbuilding activities ...which was definitively abolished at end 2000."
"If activated under the conditions set out in the regulation," he explains, "the support under our temporary defensive mechanism will be strictly limited in scope, time and also aid intensity to a maximum of 6%, as proposed by the Commission, rather than the 14% originally envisaged."
The subsidies will be available for containerships; product and chemical tankers and LNG tankers. Subsidies will be authorized for containerships and products and chemical tankers as soon as the Commission gives notice that it has launched the WTO procedure against Korea. Subsidies will be available for LNG carriers if a Commission investigation under the Trade Barriers Regulation (TBR) covering the full year 2002, confirms that Community yards building this type of ship suffer material injury and serious prejudice, caused directly by unfair Korean practices.
[UPDATE]

Whatever the outcome of the battle with Korea, it's obvious that European shipbuilders face some tough years ahead.

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