Shipyard Consolidation: Cutting The Orderbook Cake
Shipbuilding is becoming more consolidated, with the total number of active shipyards having fallen sharply over the last decade, driven primarily by a substantial decline in size of the orderbook. This month’s Shipbuilding Focus investigates the extent of this orderbook consolidation, which continues today against the backdrop of the muted contracting environment.
No Piece Of Cake
With the orderbook having peaked back in 2008, there has been significant and well-reported consolidation in the shipbuilding industry over the last decade. The total number of active yards (all those with at least one ship of 1,000+ GT on order) has fallen from 860 in 2007 to 357 as of start September 2017, reflecting the high number of shipyards leaving the market unable to find work, as well as significant restructuring and M&A activity. Within these totals there are a number of ways in which consolidation can be evaluated, and one useful analysis is to rank yards by total CGT on order and then look at the number of yards that account for a given share of the orderbook. While the number of yards accounting for the ‘first’ 25% of the orderbook has remained steady over the last decade, as of start September 2017, 50% was on order at 24 yards, down from 32 yards ten years earlier. Meanwhile, 75% of the orderbook was on order at 59 yards, down from 101.
Smaller Cake, Bigger Slices
The scale of consolidation varies by country. In China, the number of active yards has fallen sharply from 384 in 2009 to 114 as of September 2017, with many yards which opened during the shipbuilding boom struggling to secure contracts once ordering declined, and activity eventually dominated largely by state-backed entities. Furthermore, the share of the Chinese orderbook in CGT terms accounted for by the ‘top 10’ yards in China increased from 34% in 2007 to 43% in September 2017. Similarly, in Japan and Europe the ‘top 10’ yards have seen their orderbook share grow, from 49% and 30% respectively to 60% and 76% over the same period, with many European yards ceasing operations, even if others have recently benefited from firm cruise ship ordering. Meanwhile, in Korea, yards in the ‘big 3’ builder groups (Daewoo, Hyundai HI, and Samsung HI) have seen their share of the Korean orderbook grow to 92%, up from 70% ten years earlier.
Top Of The Layer Cake
Larger yards have also taken a bigger share of the contracts placed in 2017 so far, further entrenching orderbook consolidation. Only 108 yards have reportedly taken a vessel order (1,000+ GT) in the year to date, with 70% of ‘active’ yards yet to take a new contract in 2017. The ‘top 10’ shipyards, ranked by total CGT on order and which account for 32% of the global orderbook as of 1st September 2017, also account for 40% of contracts placed so far this year in CGT terms.
So consolidation has been a feature of the shipbuilding sector over the last decade, and the more significant yards have increased the size of their slice of the activity. However, for the industry as a whole, the change in the structure of the orderbook makes the impact of the reduced orderbook and today’s limited contracting environment very clear indeed.