CONSOLIDATION A CONTINUING THEME IN JAPAN
Business determination by Japanese shipbuilders is expressed in the reshaping of strategies and capacities in the face of unremitting competition, writes David Tinsley.
Reflecting a cultural predisposition that has a fundamental bearing on business strategy, the Japanese focus on continuous design enhancement in target sectors of deepsea merchant vessel construction is one of the shipbuilding industry’s strongest cards, complemented by an unerring drive for productivity gains.
By consistently increasing product value while restraining capital cost development, the shipbuilding sector as a whole has retained a very high profile and international competitiveness in certain key fields, notably bulkers, crude oil carriers and gas tankers. Japan is ranked third in the global shipbuilding league, after South Korea and China, as regards output and workload. But business performance in terms of financial results is ultimately plagued by the intensity of the competition, especially that from counterparts in China and South Korea, where government is directly or indirectly supportive of the industry on national economic grounds.
Companies are rising to the new challenges by concentrating more resources on higher added-value tonnage, new product lines and technological R&D, and by building integration capabilities and stronger supply chains.
Consolidation has been a theme for some years, and continues to be expressed both within the diversified conglomerates that span shipbuilding, and between separate organisations. In June 2017, Mitsubishi Heavy Industries (MHI) forged commercial alliances with Oshima Shipbuilding, Namura Shipbuilding and Imabari Shipbuilding. MHI subsequently implemented an internal reorganisation, forming Mitsubishi Shipbuilding to undertake construction of the most outfitting-intensive vessels and MHI Marine Structure Co to concentrate on large shipbuilding projects and fabrications.
The following year, Fukuoka Shipbuilding acquired Watanabe Shipbuilding and Usuki Shipyard, the rationale being to enable diversification of production, and respond more flexibly to fluctuations in market demand. In 2014, Namura Shipbuilding acquired Sasebo Heavy Industries, a year after IHI Marine and Universal Shipbuilding merged to form Japan Marine United Corporation.
Most recently, against the backcloth of losses on several large-scale, overseas engineering, procurement and construction (EPC) projects, exacerbated by reduced earnings from ship construction and engine manufacturing, Mitsui E&S Holdings, formerly Mitsui Engineering & Shipbuilding (MES), formulated a plan to reform and re-focus its business structure over the next four years.
Mitsui E&S Group’s Business Revival Plan, announced in May 2019, foresees asset disposals and withdrawals from unprofitable sectors, reductions in the payroll and overheads, and a concentration of resources in growth areas. Merchant vessel production at Chiba, the group’s largest shipyard, will be reduced and activities there will be re-orientated towards energy engineering and large steel structure fabrication. At the same time, newbuild business will be pursued through collaboration and alliances with companies outside the group. The plan also sets out to expand the product line-up of ship and industrial machinery, and places commercial emphasis on the provision of lifecycle support services.
Last year, MES offloaded a shipbuilding asset through the sale of Minaminippon Shipbuilding to Imabari Shipbuilding, the industry’s most prolific constructor. Located at Usuki, on Kyushu Island, Minaminippon had been jointly owned with Mitsui OSK Lines (MOL). MES, in its new guise as Mitsui E&S Shipbuilding, subsequently sealed a pact with Tsuneishi Shipbuilding. The partners had stated that “The purpose of the agreement is to attain continuous growth of the shipbuilding business through collaboration between the companies in building up design and development capacity, and thereby obtaining more orders, while at the same time maintaining their respective independence in management”.
The relationship spans joint technological R&D, design and manufacturing, personnel exchange, cooperation in procurement, and mutual use of facilities owned by the companies in Japan and overseas.
The roll-out of the group’s Business Revival Plan was also preceded, in October 2018, by an agreement to establish a ship construction venture in China with Yangzijiang Shipbuilding and Mitsui & Co. The proposed joint entity, to be registered in Jiangsu province, would be tasked with creating a globally competitive business by combining Yangzijiang’s high production capacity with the Japanese partners’ commercial and technological capabilities.
The internationalisation strategies of various Japanese shipbuilders have already contributed substantially to the industry’s corporate resilience, providing new outlets for design and production know-how and for higher-value elements from Japan.
With its headquarters yard at Fukuyama, in Hiroshima prefecture, the Tsuneishi Group’s overseas expansion has seen the establishment of shipbuilding affiliates in the Philippines, China and Paraguay, all of which continue to break new bounds in their construction range.
Tsuneishi Heavy Industries (Cebu) has added an optimised design of regional containership to its portfolio, by way of a contract from Lepta Shipping encompassing four 1,944TEU vessels. The class achieves the highest container intake within the maximum hull dimensions for access to the port of Bangkok, and features Tsuneishi-developed TOP-GR and MT-FAST energy-saving propeller and hull fittings plus SOx scrubber technology. The first of the Bangkok-max series was launched in the Philippines on 4 May.
Meanwhile, Chinese affiliate Tsuneishi Group (Zhoushan) has this year delivered its first LR1 (Long Range 1)-category product/chemical tanker, in the shape of the 77,000dwt Orange Victoria. The vessel type provides a flexible solution to the rising demand for refined petroleum product, petrochemical and veg oil transportation, encompassing IMO Type 2 and Type 3 cargoes, with the added advantage of increased load capacity. Notwithstanding the 77,000dwt measurement, the design has a depth and draught akin to that of many MR (Medium Range) tankers in the 40,000-54,999dwt band.
Realising a plan envisaged when the Sino-Japanese joint venture Dalian COSCO KHI Ship Engineering (DACKS) was founded in 2007, completion of a second building dock at the Dalian Lushun yard was announced by Kawasaki Heavy Industries (KHI) on 1 March this year.
As with the 700m-long No 1 Dock, the No 2 Dock offers immense potential, by way of a length of 550m and width of 68m, spanned by two 800t gantries and served by two other cranes. A bulker of 61,000dwt ordered by China’s CMB Financial Leasing Co has been laid down in the new facility, which could pave the way in the longer-term for KHI to sharpen its international competitiveness in fields where its Japanese shipbuilding operations are prominent, notably LNG and large LPG carrier construction.
While COSCO and KHI have respective 36% and 34% shareholdings in DACKS, the balance of 30% is held by Nantong COSCO KHI Ship Engineering(NACKS), the Japanese group’s other joint shipbuilding undertaking in China. KHI is looking to secure greater efficiencies by strengthening collaboration between DACKS and NACKS, in areas such as purchasing and assignment of shipbuilding work.
DACKS applies the Kawasaki Production System (KPS) and draws on technology from KHI and NACKS. The yard is focused on the top end of the vessel size range, including VLCCs, 20,000TEU-class boxships, and bulkers and ore carriers in the 200,000-300,000dwt range. Once it reaches maximum production capacity, annual output scope will reach 3m dwt, with steel processing throughput of 400,000t.
Taking a different tack from most of its compatriots, Imabari Shipbuilding has continued to pursue further growth by a vigorous policy of business expansion, yard acquisitions and investments within Japan. The Imabari approach signifies a strategic bid to challenge Chinese shipbuilders which have grown larger in size through mergers and takeovers under the guidance of Beijing.
During 2017, the group brought into full commission the country’s first new dock for ship construction in 17 years, bolstering the unlisted organisation’s standing as Japan’s leading shipbuilder. The No3 drydock at Imabari’s Marugame headquarters complex has bolstered the company’s scope for ultra-large containerships of 20,000TEU, VLCCs, very large ore carriers(VLOCs), and LNG tankers, and confers the capability to produce multiple units in quick succession.
Ongoing investment at Marugame reflects the commitment to internal R&D, and ultimately to product quality and performance, as it involves the building of new test tanks.
While earnings have been ploughed back into new and upgraded facilities, acquisition of companies and yards is a consistent factor in the Imabari Group’s evolution. A raft of names has been absorbed over the years, including Imai, Nishi, Iwagi, Koyo Dockyard, Shin Yamamoto, Hashihama, Shin Kasado, and Watanabe. More recently, in 2015, the Tsuneishi subsidiary Tadotsu shipyard was brought into the fold. Two years later, the group gained control of Minaminippon Shipbuilding. Having operations concentrated in the Inland Sea region helps the group to hold down logistic costs.
Notwithstanding increasing output from Chinese yards, authoritative industry sources indicate that Chinese productivity is generally only about one-third of the average achieved by Japanese builders. However, the latter are acutely aware that there is no room for complacency. As part of its blueprint for industry in the coming years, China’s government has identified shipbuilding as a strategic pillar of the economy, and has set out plans for a major advance in productivity within the next few years.
China’s policy directive not only means an ever-more challenging scenario for the Japanese, as well as for South Korean yards and potentially also for the remaining bastions of European shipbuilding, but could also have further implications for global shipyard capacity. Investments in technology and processes will raise the annual output potential of Chinese yards, creating new production capability which will offset the capacity removals of recent years attributable to integration and to closures of weaker and smaller shipbuilding players.
For its part, Japan regards new technology, not least advanced robotics, the application of artificial intelligence(AI) and more sophisticated ship design methods, as fundamental to maintaining a production edge and profitably recovering market share.
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