The shipyard and ship manufacturers sector in Europe have been in a continuous decline over the last decade due to the fierce and often unfair competition it receives globally and mainly from fierce competition from the Asian countries.
The shipyard industry in Europe generates a total annual turnover of €90 billion while offering nine hundred thousand (900000) jobs. But before we get to the solutions to the problem of this important sector of the economy, we need to look at the causes of the problems that have led to this labour-intensive industry in a permanent decline.
by Thanos S. Chonthrogiannis-https://www.liberalglobe.com
The causes of problems that exist at the company-yard level
The construction of all kinds of surface vessels for commercial purposes belongs to the heavy industry category of a country and has always been a high-tech product, as well as the production of commercial airplanes and the aircraft manufacturing industry in general.
These industries are necessary because in addition to the direct jobs they offer in the construction of the ships simultaneously they offer indirectly and thousands of jobs in a hundred different sectors of the economy that are receiving work or sub-work (sub-project) in this type of construction. As an example, from steel industries to cable and battery manufacturing industries.
A. Since there is a reduction in industrial production in a country or at European Union level, then the shipyards start and change the clientele of their suppliers in order to make their product (construction of ship) more accessible and competitive-in terms of the final price-to their prospective customers.
This means that in order to follow the competition they will have to adapt to new data by looking globally and increasingly dependent on purchases of materials, services and equipment from abroad, in order to achieve the best possible low price for the ship they manufacture without making discounts on the quality of its construction. If the companies-shipyards do not adapt quickly to the new reality, in short time will lose their position in relation to the competition.
At the same time, turning them towards non-domestic markets to buy the best cost-price materials, services and equipment respectively, it has the effect of reducing the turnover of other industries that are indirectly and directly linked to the sector of construction of ships. This means less profit and a gradual increase in unemployment in the economy, since these companies will slowly and steadily start to under operate.
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B. European shipyards have a common characteristic regardless of the country they are based in. They are characterized by strong labour unions.
This has as a timeless effect the constant struggle between trade unionists, who use the workers and especially the strikes as a blackmail mechanism, and the respective employers of the shipyard.
In Asian countries, except in China where strikes are not allowed, such as South Korea and Japan, the relationship between employees and employers is completely different from that prevailing in Europe.
In these countries the employee considers himself an integral part of the company irrespective of the position he works and considers his obligation to complete the product within the prescribed timetable without complaining and “revolt” in his employer.
Unlike Asia, in Europe, shipyards and generally companies employing many employees are used by labour unionists to promote their own personal interests under the label of ‘social class wrestling’ between workers and capital and as they baptize it.
It is not uncommon that trade unionists in the European shipyards with the blackmail attitude they have been holding through the workers declaring long-lasting strikes in order to achieve an increase in their salaries, they achieved at the end to indict potentially customers and ships until the shipyards employers to meet their demands.
These blackmail – like practices by European trade unionists and workers respectively had and have specific consequences:
1. The timetable for the construction of the ship is never complied with the result that the delivery time of the ship which is indicated in the contract between the shipowner and the shipyards is not fulfilled on time.
Every day that goes through the agreed date of delivery of the ship the shipowner loses money because he may have agreed to charter the ship from the next day of delivery and the shipyard-company may be obliged to pay clauses under the contract.
As a result of this practice, potential shipowners are slowly and progressively avoiding such companies-shipyards in which this type of practice prevails.
Such practices do not exist in Asian countries for this many shipping companies decide to construct their ships in shipyards in Asian countries knowing in advance that the timetable for the ship’s construction and the date its delivery will be fully adhered to under the contract.
A company will prefer to construct or repair its ship in a shipyard of an Asian country that knows it will observe the delivery time of the ship even if the final value of the ship is higher in relation with the corresponding final value for the same ship that offered at a European shipyard.
2. The continuous “social class struggle” in the European shipyards creates the ever-increasing demand for wage demands that end up with increased operating and manufacturing costs for European shipyards.
Labour cost increases the final price/value of the product-ship, making the company-shipyards uncompetitive in a long horizon.
The smaller the percentage of labour costs participation in the final value of the project, and since all other conditions are met, the lower and competitive the final price of the product will be without affecting the profit rate.
And in this area-labour costs-the shipyards in the Asian countries are extremely competitive in relation to the European shipyards.
3. Once a company is not able to compete in relation to the global competition, the company’s management begins to postpone solving any problems for future times mainly due to lack of funding resources.
In this way, highly necessary investments that will improve the quality and time of construction of the ships, are constantly being postponed, resulting in a worsening situation.
These necessary investments must be made both for the upgrading of shipyard infrastructure and in modern mechanical equipment. Essentially, the capital investments up to then are beginning and declining and are not renewed so that these companies “grow” even more the distance that separates them with their competitors.
4. Gradual deterioration of human resources due to under operation of shipyards and inability to provide a minimum level of training of existing staff and inability to recruit new skilled craftsmen.
The causes of the problems that exist at the level of the economy
1. The situation in which the global economy is located is the main factor influencing demand for ship constructions and repairs.
More specifically, if the international economy is in a state of recession then the demand for maritime transport is automatically affected. Dry cargo vessels, due to low global demand and consumption, when there is a recession, the dry cargo fares are precipitating at very low levels, so that it is not in the interest of shipowners to construct new ships of this type.
Since the world economy is in a state of growth then demand for consumption is increasing and fares for merchant ships are rising due to the rising demand for maritime transportation and demand for the construction of new ships is increasing.
2. The plethora of shipyards on a global scale inevitably leads to mergers and acquisitions in this sector with thousands of redundancies taking part-for the rational cost-of the shipyards in Europe, South Korea, China, Japan, USA.
Since there is a greater supply for the construction of new ships in relation to the reduced demand for maritime transport, then we are shrinking the industry.
3. Any geopolitical changes that may exist on the planet may dramatically affect the demand for maritime transport.
For example, riots in the Persian Gulf, the Middle East, the Eastern Mediterranean and the Pacific Ocean could make maritime transport dangerous.
4. Policies imposed by governments on companies-shipyards to preserve jobs regardless costs harm these companies even if the politicians who enforce them win in votes against the future survival of these companies.
5. Unfair and fierce competition. The different mentality of such industries-companies in Asian countries have helped the shipyards in these countries greatly.
The Asian countries subsidize this type of shipyard companies and have gained a very important lead in relation to the European shipyards. The EU has stopped any subsidy to European shipyards resulting in European shipyards to have scary-sized market shares.
Essentially, globally, the construction of oil tankers, LNG vessels, and container ships is being carried out in Asia and specifically in the shipyards of Japan, China and South Korea respectively.
Given this element, the European shipyards in order to survive due to the competition have specialized in the construction of luxury boats, cruise ships, sea platforms, oceanographic vessels, marine equipment, desalination tanks and equipment of renewable energy sources.
Policies-Responses in order to improve this unfavourable situation for European shipyards
1. At company-level shipyards should be understood by all employees that in order to increase their total annual earnings there should be on an ongoing basis enough work/projects in the company-shipyard working.
To achieve this, the company must be highly competitive. This can be achieved through flexible working hours and depending on the demand that the work-construction of ship will have in the labour force each time.
This means that the company should have a high degree of job flexibility until a project flow plan is achieved on an ongoing basis so that it is able to offer full work to the largest percentage of its employees if not in total of these. Only in this way will it be able to compete with the working costs of Asian shipyards.
2. In addition, investments should be done in mechanical equipment and modernization of infrastructure in the shipyards.
3. It goes without saying that the timetables for the construction and final delivery of ships should be strictly adhered to. Only in this way will the company-shipyards be able to acquire for its name a goodwill that will stabilize it in the global market and will make it attract customers on a stable basis.
4. The EU is known to be against the state subsidy policy which is an extremely good measure. The fact that the EU does not allow subsidies to shipyard companies has forced the shipyards to specialize in specific areas in order to survive.
But the EU could go ahead with the financing of surface and under surface vessels respectively for its pilot organized EU navy and Coast Guard respectively so that it can give work to several EU shipyards.
5. More free trade agreements need to be made on behalf of EU with other countries to open the respective shipbuilding markets to these countries. For example, one type of this free trade agreements is the Trans-Atlantic Trade & Investment Partnership.
Thanos S. Chonthrogiannis
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