Japan, South Korea and China together have a share of more than 85% of the ship-building industry. Chinas rise has been meteoric. In a span of a decade, China increased its marketshare from 2% in 1995 to about 20% now. It employs about three lakh people in about 500 shipyards, having an order book of about 40 million DWT. India employs 12,000 people in 28 shipbuilding yards with a 1.3 million DWT order book. These figures provide not only the amount of catching up to do but also the immense opportunities in the ship-building industry. The government of India has set an ambitious target of garnering 8% of the world share by 2017.
Maritime trade constitutes 95% of Indias total trade by volume. Being among the fastest-growing economies in the world and having a 5,500-km mainland coast line, India is ready for a large ship-building industry catering to the world. In addition, Indias labour costs about eight times less compared with that of South Koreas. The epicentre of ship-building has moved from Europe to Japan to China due to lower labour costs. Coupled with them is the advantage of having a developing ancillary industryengines, generators, valves, pumps, etc. It is estimated that every Re 1 invested in ship-building will trigger investments of Rs 10 in ancillary industries. Currently, even Indian shipyards are purchasing such equipment from foreign firms that are able to sell cheaper because of the economies of scale. About 45% of the input requirements are imported. As in the automobile industry, India has the opportunity to build a buzzing ecosystem for ship-building.
In the last few years, private players like Great Eastern Shipping, Mercator Lines, ABG and Bharati have been operating ship yards successfully. Pipapvav Shipyard floated an IPO in September 2009. Coming off record levels of orders and fleet utilisation in 2008, the economic bust has altered the scenario in ship-building. Compared with an order book which was about half of the existing fleet size in start of the year, new orders have been close to nil in 2009. Platou research claims that to avoid structural overcapacity, about 40% of the orders for bulk vessel and container vessels have to be cancelled. How the industry adjusts to the altered economic conditions will be interesting to watch.
While China focused on building capacities with smaller and less complex vessels, India should not only compete in that space but also be focused on developing competencies for complex vessels that require large automations. India has already carved a niche for offshore vessels that are important in the ever-expanding oil & gas exploration industry. There should be a strong focus on R&D in ship-building, maintenance, design and management. Indian firms should tie up with foreign partners to capture technology flow and build capacities. Being a knowledge-based industry, India, with its English-speaking workforce, has a natural advantage .
A ship is sold first before it is built. In the ship-building industry, credibility is paramount. Indian firms should improve productivities, modernise quickly and deliver on time. Though on par with China, the productivity lag in India can be gleaned from the fact that the DWT per person in India is 50 compared with 300 in Japan.
Like any nascent industry, ship-building needs state support to stay competitive in the global market. Other than fiscal incentives, the government should create an enabling environment that fosters research and innovation. Maritime cluster is the cornerstone of the Norwegian maritime industry. A Norwegian cluster contains players from the whole maritime value chain, viz. ship-building, ship design, shipyards, research institutions and finance. This stimulates transfer of knowledge, spawning entrepreneurship among different actors. Best practices followed in other industries like single-window clearance, having a separate monitoring authority for ship-building, etc. could go on to ease the constraints and enable development of the industry.
Ship repair has always been accorded secondary status (this article has been no different) compared to ship-building in spite of its immense potential for employment. Ship-building is technology-driven, while ship repair is labour-intensive that calls for good ancillary support and quick turnaround time. For every Rs 100 spent on ship repair, Rs 30 goes as labour charges. The ship repair industry is evergreen and very different from the cyclic ship-building industry. The annual repair potential of ships operating in India or calling Indian ports alone is estimated to be about Rs 2,800 crore. It is ironic that Indian labourers, who acquire their skills in India, man the yards in Singapore, Dubai and Colombo which are the leaders in ship repair.
China has been emerging as a dominant player in the ship-repair industry, too. China has 176 dedicated ship repair yards, while India has one yard and 35 smaller ship repair units. About 56,000 people in China are involved in ship repair while in India the number is 5,000.
Placed strategically between the east and the west, India presents itself as an excellent choice for ship repair industry by offering low mobilisation and demobilisation expenses. With the labour advantage, India should position itself as a cost-effective destination for ship repairs. India should also give more attention to setting up new repair facilities and cater to the repair needs of larger vessels like VLCCs. Also, ship repair offers the ideal platform for firms to develop capacities and establish a steady revenue flow as they move up the value chain into ship-building.
India missed the shipping boom in the 20th century due to the lack of industrialisation in the 1970s. Now, the 21st century opportunities beckon. As descendents of the enterprising Harappans, we should seize the tide.
Nagarajan is a senior consultant, and Sriram and Sharda are managers at PricewaterhouseCoopers