Despite an increasing Asian content of ship equipment on ships built in Asia, German ship suppliers are maintaining their technological leadership in many areas
When more and more German companies were offering equipment and services to shipyards in Japan, China and Korea, most of[ds_preview] them were absolute market leaders and had little or no competition from local companies. A long time ago, well before the shipbuilding boom of the last decade, German engine builders and other marine equipment suppliers already concluded license agreements with local companies or agreed joint ventures.
There was good reason for this: Shipping a heavy piece such as a hatch cover or a main engine from Europe to China or Korea makes little commercial sense. However, the situation has changed fundamentally: Chinese and Korean companies are closing the technology gap and in many areas local content requirements or other protectionist measures are increasing. The times of strong ordering from German shipowners – aware of the superiority in quality and design of German equipment and systems – are over: Since 2008, German shipowners’ ordering activity has dropped to record lows. Instead, German manufacturers have to compete for the support of shipowners from other countries such as Greece, which today lead the newbuilding market for merchant ships.
The business environment is challenging: Japan, with its long tradition of domestic sourcing, remains a fairly closed market for foreign equipment suppliers. The Korean shipyards and marine equipment suppliers are facing an order volume way below their production capacity and suppliers are therefore struggling in a fierce fight for low prices.
For most German maritime equipment suppliers, Chinese merchant shipbuilding is by far the most important market in Asia. In addition to expanding its leadership in the merchant ship sector, China’s »Made in China 2025« agenda aims for the construction of high-end ships such as RoPax and cruise ships, which are today the domain of European shipyards. On the one hand, this offers new potential for those among the German suppliers specialized in this domain. On the other hand, despite all assurances of the contrary by the Chinese government, any foreign company supplying to China is facing increasing headwind. German companies are concerned that China’s industrial policy does not offer a level playing field. The construction of advanced ships such as cruise ships, large yachts, icebreakers, LNG tankers and the production of advanced components such as propulsion systems are key strategic goals for the »Made in China 2025«, which are flanked by measures such as financing indigenous development, technology transfer via acquisitions, co-operations and joint ventures. In combination with online censorship mechanisms such as cracking down the use of »unauthorized« VPNs it is increasingly difficult for foreign companies operating in China to protect their IP.
Alternatives outside of China
Although much less significant in terms of business volume, there are other countries in Asia for German suppliers to conduct business with. Singapore is an important base for many German suppliers to serve the local, Asian and even Australian markets. The Indonesian archipelago also has a high demand for domestic seabourne transport. However, the lack of suitable ports, local content requirements, cabotage rules, tariffs and long decision-making processes make it difficult for projects to realize the projects required to satisfy the demand.
The general picture in India is similar. Recently, several measures have been implemented to improve the situation: Cabotage rules have been eased, tariffs reduced and the Sagarmala programme, a strategic investment initiative by the Government of India, aims to build new megaports, modernize existing ports and establish coastal economic zones.
Waterborne transport currently contributes less than 10% to India’s modal mix, and the growing economy pushes the rail and road transport system to full capacity. It is logical to increase transport capacity by facilitating the construction of a fleet for coastal and inland waterways transport. The growing Indian economy will be otherwise curbed by congested means of transport. First steps in this direction are on the way. The most advanced one is the developing programme for inland waterway no. 1 on the Ganges River, which includes the construction of cost-effective and environmental friendly river-going vessels. For German suppliers and design companies specialized in river-going and coastal vessels, this promises good opportunities for the future. But India is a challenging market and experience from the past led most suppliers to be cautious about their expectations.
This makes the naval sector the main reason for German suppliers’ interest in the Indian market. Like many other Asian countries, India is expanding its naval capacity in response to maritime interests in the region. The Indian naval newbuilding programme alone comprises more than 100 vessels.
According to market estimates, German suppliers achieved a maritime equipment turnover of more than 11 bn € in 2017. After Europe, most of it was for export to Asia with China as a main destination. Since some time, the market environment for German suppliers in Asia has become tougher and tougher.
On the other hand, ship technology is changing faster than ever before. New production methods and materials open up opportunities. The demand for safer, more efficient, intelligent and environmentally friendly ships implies more sophisticated engineering, a trend that goes well with the strengths of German suppliers. This puts their engines, propellers, gearboxes, thrusters, scrubbers etc. on the preferred position of international owner’s makers lists. German suppliers have realized that it was never as important as it is today to lead the path of innovation, in the areas of intelligent ship equipment, propulsion, new fuels, energy saving and environmental technology.
Christian Schneider
