If we look at the total order book from Japanese Shipyards (reported by Japan Ship Export Association), their backlog at the end of 2013 was around 26.4m gt, representing a downward trend from approximately 27.5m gt in 2012 and 37.8m gt in 2011.
The weakening of the Japanese Yen and the anticipation of an upturn in the market resulted in a significant increase in orders during the second half of 2013, bringing the total orderbook up to close to 13m gt, up from 9-10m gt the last couple of years. But as the total annual newbuild capacity in Japan is approximately 16m gt, there is still excess capacity and it remains an open question whether we are witnessing a short-term upswing or a reversal of a downward trend.
Those who believe that the Japanese shipbuilding industry is likely to fade away, blaming fierce price competition from neighboring countries, are underestimating the “spirit of the samurai”. A correction in new building capacity will, for sure, be necessary considering the current over-capacity combined with an aging workforce. Last year saw the merger of Universal Shipbuilding and IHIMU into Japan Marine United Corporation (JMU), as well as a joint venture between Mitsubishi Heavy Industries and Imabari Shipbuilding to handle the design and marketing of LNG carriers and bulk carriers. We expect to see more such moves in the near future as the Japanese shipbuilding industry continues to position itself to be able to take advantage of new opportunities.
But the real hope of survival of Japanese yards lies in high-value tonnage and new advanced-design vessels capable of meeting environmental and fuel efficiency requirements. With a growing interest in oil exploration in arctic areas and utilising the northern sea route, new ship types and designs will be needed. These will generate new opportunities for the Japanese shipbuilding industry, yards, steel mills, and component manufacturers.
Japan already has several technically advanced yards that have an impressive track record of building a wide range of vessel types from FPSO’s and LNG tankers, all the way through to cruise ships. Many yards have recently revealed new fuel efficient and environmentally friendly designs, claiming a reduction in fuel consumption of more than 30% compared to traditional designs delivered only a few years ago. This is good news for ship owners where fuel consists of approximately 60-70% of operational cost.
If we gaze into the crystal ball and try to make some predictions about what ship types will be in demand the next two - three years, our best guesstimate is offshore related vessels, in particular offshore/platform support vessels (OSV/PSV), wind turbine installation vessels (WTIV), LNG carriers, and also pure car and truck carriers (PCTC). The two latter ship types are already mature segments for several yards in Japan, whereas the others represent new opportunities. Additionally, we are currently witnessing a new and very interesting focus on high-value offshore vessels from Japanese yards.Japanese yards have a keen eye for new opportunities and were in fact involved in the offshore sector in the 1980’s. However, several projects ran into difficulties as this was a new sector for Japanese builders— the focus quickly returned to more traditional shipbuilding. To this day over 80% of all newbuild contracts are for dry bulker carriers.
Other shipbuilding nations , in particular Korea, seized the opportunity to gain a foothold in the offshore market which they have maintained ever since. Now, however, it seems that Japan has had a change of heart, and has decided that offshore is indeed the place to be.
With strong support from the government, Japanese yards are being encouraged to move into building more technically advanced and specialized units. We have already seen that several yards, among them Kawasaki Heavy Industries (KHI) and JMU, have established themselves in Brazil by acquiring significant shares in yards focusing on the local Brazilian offshore market.. Furthermore we are seeing a trend of foreign owners placing more and more new orders for specialized tonnage at Japanese yards.
Two recent example of this come from the highly demanding Norwegian offshore cluster. Having already taken delivery of two advanced seismic vessels in their new Ramform class, Petroleum Geo-Services are midway in their newbuilding program at MHI in Nagasaki. And recently Island Offshore, a dedicated service provider to the offshore industry, announced that they have concluded a contract with KHI for the construction of their new high-end offshore service vessel. The ability to win high value contracts for sophisticated offshore vessels showcases the strengths of the Japanese shipbuilding industry and we expect a determined push in this direction to continue.
In summary, we are gradually witnessing a strategic move in Japanese shipbuilding: from the mass production of long-series standard bulk carriers (and oil tankers), to short-series, technically advanced high-end units, more or less tailor-made for specific future use. Owners of these units, often intended for the offshore sector, are more challenging for the yards than “traditional” owners, and they have crystal-clear expectations of the builder: quality and timely delivery.
These are the core strengths of the Japanese shipbuilding industry, and these are the main reasons why the future looks bright.
Contributed by Torgeir Willumsen (Wikborg Rein, Singapore) and Johan-Petter Tutturen (DNV GL, Japan)