‘Year 2019 problem’ looming over Japanese shipbuilders

The Japanese shipbuilding industry is again facing the prospect of building almost no ships at domestic shipyards, as orders for exports in 2016 plunged more than 80% from the previous year to a 24-year low.

Shipbuilders are continuing to operate their shipyards thanks to around two years’ backlog of orders. But if orders continue to decrease, some of them will have no ships to build in 2019. Industry watchers wonder if shipbuilders can overcome the imminent crisis as they did on various occasions in the past.

Shipbuilders won orders for exports totaling 3,716,049 gross tons in 2016, down 83.3% from the previous year, the Japan Ship Exporters’ Association said Wednesday. Orders received in December alone involved only eight ships, a plunge from 63 a year earlier.

Ship construction remains solid at present. Japan Marine United is building large cargo ships, each capable of carrying 14,000 containers, at its dockyard in Kure, Hiroshima Prefecture. “We are probably the busiest shipyard in the world,” said Jun Yoshida, administration manager at the dock.

The shipyard has been kept busy since JMU won an order for 15 such large cargo ships from Nippon Yusen, a top Japanese marine transport company, in 2014.

No ships problem

The Japanese shipbuilding industry faced a Year 2014 problem of building no ships in the year following a plunge in orders in 2011-2012 due to the global recession and the yen’s steep rise. But it avoided the fate thanks to the yen’s depreciation starting in 2013 and a temporary increase in orders before the launch of tougher environmental regulations for ships in 2016.

But the tailwind was short-lived as shipbuilders were hit by a shrinkage of orders following the special demand and a slump in the market. A Year 2019 problem is now looming over Kawasaki Heavy Industries and Sumitomo Heavy Industries because they won no shipbuilding orders in the April-September period of 2016.

Shipbuilders are pinning hopes on environmental regulations due to be toughened in 2020 to limit emissions of sulfur oxide and other pollutants from ships.

“We are expecting a pickup in orders from around 2018” before the tougher regulations take effect, said Shigeru Murayama, chairman of Kawasaki Heavy and of the Shipbuilders’ Association of Japan.

To prepare for an expected recovery in orders, shipbuilders are improving their environmental technologies. Cargo ships under construction at JMU’s Kure shipyard, for example, require 15% less horsepower to carry each container than those built by other companies.

But global shipbuilding capacity remains in excess of demand. “In light of Japanese, Chinese and South Korean shipbuilders’ capacity, a moderate pickup in demand will not pull ship prices out of the doldrums,” said Toru Kitani, senior researcher at SMBC Friend Research Center.

In addition, many shipping companies have delayed orders for new vessels as a persistent gap between supply and demand is keeping freight rates low.

JMU was established through the merger of entities, such as shipbuilding units of IHI and JFE Holdings, in 2013 when the Year 2014 problem began to draw attention, triggering shakeouts in the Japanese shipbuilding industry. But there remain many other players in the industry, including integrated heavy machinery makers and specialized shipbuilders.

Shipbuilders will be tested for their technological and marketing capacities in 2017 to avoid a potential Year 2019 problem.
Source: Nikkei