Japanese yards set to restructure

Japanese shipbuilders say the problems they face because of continuing competition from Korea and China, and premature ordering from many shipowners in the past 12-18 months, are being compounded by the value of the Yen, and that spin-offs and mergers among the major yards are inevitable.

Against this backdrop, the conglomerates owning many of the larger yards are redoubling efforts to enhance their cost-competitiveness and plan to concentrate their efforts in areas with higher earnings potential.

Some, such as Hitachi Zosen, have already taken steps to reduce costs as of August 1, Hitachi Zosen?s Ariake yard became a separate company, primarily in order to reduce its overheads, although, for the time being marketing and administration will continue to be undertaken centrally within the group.

In due course, says Tsutomu Ikegaki, general manager in Hitachi Zosen?s Ship & Offshore Sales Department, each of the four yards within the group will also be re-established as separate business units.

Typical among the yards which are part of a larger industrial grouping for which cost cutting and concentrating on profitable areas of their business are now a priority Kawasaki Heavy Industries (KHI), which has a fairly healthy orderbook compared with many of the larger yards. KHI shipbuilding division says it is striving to reduce materials costs and increase productivity in order to boost competitiveness, while continuing to invest in the development of new, advanced products and technologies.

However, the medium term business plan at the KHI group has been radically revised, and the new plan which has a target date for completion of 2004 has the aim of halving costs

Although not one of the yards identified by industry representatives as ?struggling?, turnover at the shipbuilding division of KHI accounts for just 10 per cent of the group as a whole. Even at yards where the contribution to turnover amounts to as much as 15-20 per cent, shipbuilding is not a core activity.

Problems at yards such as NKK, Mitsui Engineering & Shipbuilding (MES) and Sumitomo Heavy Industries are exacerbated by the continuing strength of the Yen, while the Korean Won remains weak. Compared with the same time last year, when there were Yen140 to the dollar, the Japanese currency has strengthened to approximately Yen110 to the dollar at the time of writing.

Compared with the same period in the previous fiscal year orders received by Japanese yards fell by 15 per cent in the first quarter of the fiscal year beginning April 1999, says Nobutaka Nambu, the newly appointed executive director of the Shipbuilder?s Association of Japan. The latest set of figures released by the Japanese authorities indicate that new orders in August totalled 579,499gt (a total of 18 vessels), a figure that was 50 per cent higher than July (193,130 gt) but 61.2 per cent lower than the same month in 1998.

To survive in what will be a very fierce and competitive environment, Mr Nambu says Japanese yards must reduce their costs and enhance their cost competitiveness, increase their technical capability and bring new, more effective designs to market. Gains could be made in the offshore sector, says Mr Nambu, citing the continuing high level of demand for floating production units, and the continuing high level of demand for cable layers and seismic ships continue to present opportunities Japanese yards have so far failed to capitalise on.