ASIA NEWS NETWORK

WE KNOW ASIA BETTER



» Business

Japanese shipbuilders face uncertain future despite weak yen

Publication Date : 28-04-2014

 

Japan's shipbuilding industry faces uncertain waters. As shipbuilders scramble to secure construction orders for large passenger ships and special-purpose vessels that require advanced technology, profits continue to disappoint.

Shipbuilders have been able to survive thanks to the yen’s depreciation, but the prospect of having to fight an uphill price war against Chinese and South Korean shipbuilders has left them deeply concerned.

While Japanese shipbuilders saw their shares in the global shipbuilding market halve- from 27 per cent in 2005 to 13 per cent over a period of eight years - the combined shares of Chinese and South Korean shipbuilders increased from 53 per cent to 77 per cent in the same period.

Chinese and South Korean shipbuilders have the advantage of lower production costs, which translates to lower prices and increased orders, particularly in the case of cargo ships and tankers because of their comparatively simple structures.

Complex structures can cause complex problems, as the experience of Mitsubishi Heavy Industries, Ltd. shows. The firm lost 13 billion yen (US$127 million) building two large passenger ships from an order it accepted in 2000. Nonetheless, MHI continued accepting orders for large-scale passenger ships as a survival strategy. But the strategy seems to have backfired.

In March, MHI took extraordinary losses of 60 billion yen ($587 million) for the construction of two other large passenger ships. Though the initial construction order was valued at approximately 100 billion yen ($978 million), additional costs were incurred when the ships had to be redesigned at the insistence of the clients, who were dissatisfied with the liners’ interior design.

The company will therefore revise its focus on large-scale passenger ships, including the possibility of withdrawing from their construction altogether. A senior official of the firm said, “They incur too many losses compared to their scale.”

In other developments in the industry, Mitsui Engineering & Shipbuilding Co. said it will seek more orders for underwater probe vehicles after it failed to merge with Kawasaki Heavy Industries, Ltd. last spring.

Mitsui Engineering & Shipbuilding President Takao Tanaka is still seeking a merger partner. He said his company needs a partner to secure funding for research and development and to win orders for big projects.

The total number of shipbuilding orders for exports accepted by domestic shipbuilders in fiscal 2013 increased dramatically by 222 compared to the previous fiscal year. Japanese shipbuilders are regaining their competitive edge thanks to the yen’s depreciation, although shipbuilding in Japan had been projected to disappear by 2014.

But Takahiro Mori, an analyst at Merrill Lynch Japan Securities Co., said: “Sooner or later, Chinese and South Korean manufacturers will technologically catch up with Japan. Domestic manufacturers have to reduce their production costs as they expand their scale through a restructuring of the industry.”

 

Mobile Apps Newsletters ANN on You Tube