Chapter 1

Background to the Industry

Without shipping, half the world would starve and the other half
would freeze!
—International Chamber of Shipping
Marketing is not anyone’s job… It’s everyone’s job!
—Jack Welch

The starting point for any shipbuilding project is a potential contract. So the market is
an appropriate place to begin a discussion of shipbuilding management. Any shipyard
can only operate in the context of the market demand for its products. The long term
growth of the marine market over the last 100 years, in terms of the annual production
of ships is well known. There have though been remarkable peaks and troughs in
that growth alongside the continuous trend. Recent shipbuilding in the World has
produced around 100 million gross tonnes annually.
Considering only ships of 1000 gross tonnes or larger, there are over 50,000
merchant ships trading internationally, carrying every kind of cargo. The total world
cargo capacity is approaching 2 billion gross tonnes and at the time of writing these
ships move around 90% of world trade. Although high value and perishable cargoes
travel by air, the volume of world trade would be impossible without the large fleet
of commercial shipping. Without shipping, the bulk transport of raw materials, of
manufactured goods and of food would simply not be possible. Ships are complex,
technically advanced and expensive artefacts, with the largest cargo carriers costing
over US $200 million to build, and passenger ships up to US$ 1000 million.
Seaborne trade has continued to expand, because of the very competitive freight
rates it offers. The cost of transporting a tonne of ore or a container of electrical
goods is low, so the cost added to individual items is minute. Because of the growing
efficiency of shipping as a means of transport and increased internationalisation,
the long term prospects for the industry’s further growth continue to be strong,
whatever short term issues arise. Overall marine production includes the several
industry sectors, although shipbuilding is the focus of this book. Other sectors include
ship conversion, ship maintenance and repair, small service and leisure craft and
offshore structures.
The demand for ships comes in three broad categories, which are movement of
goods and commodities by sea, recovery of resources and use of the sea for leisure
activities. These demands require a supply of ships, which have to be designed and
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G. Bruce, Shipbuilding Management,
[Link]
2 1 Background to the Industry

built in the first instance, maintained during their working life, refitted to extend that
working life then finally disposed of when no longer operable. For the purposes of
this book only a narrow range of relatively large commercial cargo carriers will be
considered, although the principles of management described can be applied to most
types of ship and also to smaller vessel.
The main types of commercial carrier are container ships which carry most of the
world’s manufactured goods and products, usually through scheduled liner services,
bulk carriers which transport raw materials such as iron ore, coal and grain and
tankers which transport crude oil, chemicals and petroleum products.
In addition there are ferries which generally make short journeys with a mixture
of passengers, cars and commercial vehicles. Most of these ships are Ro-Ro (roll
on-roll off) ferries, where vehicles can drive straight on and off, making the turn
round very efficient and requiring only a short time in port.
Ships were the usual and often only means for people to travel long distances until
the introduction of large jet aeroplanes. Most general cargo ships on regular routes
carried a few passengers, and many of the larger ships carried hundreds. When air
transport took away the passenger market, the passenger shipping companies turned
to cruising. Demand for cruise ships expanded rapidly during the 1980s, leading to
a new generation of what can be described as large and luxurious floating resorts.
There are also numerous specialist ships such as fishing vessels, tugs, research
vessels, offshore support vessels for oil production, and increasingly for wind power
generators.
The management of any shipbuilding company must begin their search for new
contracts by reviewing the market demand for their products. To do so it will
often start with some model of market demand. Some shipyards have local markets
with limited international competition, others have very specialised products, such
as passenger ships, again with limited competition. However the majority have
to compete in a difficult international market, so need to understand where their
contracts may come from.
A number of factors can be identified which influence the demand for marine
vehicles. In the case of the shipbuilding market, these are usually accepted to be first
the replacement of ships which must be disposed of because of their age. In general
ships last around twenty five years, before age, though sometimes obsolescence,
makes them no longer economic to operate. Some ships last longer, such as passenger
ships which are frequently upgraded and can last for forty years. Others, for example
the last generation of break bulk cargo liners, are used for a much shorter time in this
case made obsolete by the introduction of containerised cargoes.
The shipyard must operate in the existing economic environment. Essentially
ships are built when there is demand for shipping, which is dependent in turn on the
state of the World economy, which drives international trade. Increases in trade have
resulted in the construction of the very large container ships, following the earlier
pattern for oil tankers, some bulk carriers and, on a smaller scale, gas carriers. The
twenty-first century has seen further increases in global trade and a surge in ship
construction, inevitably to be followed by another fall.
1 Background to the Industry 3

Predicting the shape of the future economy is difficult, and this book is not in
the business of prediction. While the long term growth trend is clear over the last
hundred years, because of the massive peaks and troughs in the growth curve this
is not of great value to a shipbuilding company. In economic terms that company is
looking at the short term, essentially seeking to answer the question of where the
next shipbuilding orders will come from.
When demand for shipping is high, a significant factor in demand for new ships is
the construction of additional ships to support growth in world trade. At other times
there is very limited demand and this uncertainty creates a problem for a shipyard
management. Economic data is also useful in that it can support a future shipyard
development, or suggest that the time is not right for such a move. It can also provide
evidence for seeking government support in difficult times.
Further additional ships are required to support changes in trade patterns, as
examples the move to larger container ships for round the world services, which
call at very few ports. These are supported by smaller feeder container ships to
distribute cargoes to smaller ports. There have also been changes in the technology
in ports for loading and unloading ships, to speed the process and keep ships at sea,
earning money.
There are also new cargoes and new routes, of which liquified natural gas is an
example. This has developed from a small trade to a major export business from the
Middle East and other regions with suppliers often owning and operating the ships.
The short term demand for ships is affected by freight rates. As shipping is a very
elastic market, a small deficit in the number of ships available for a specific trade,
compared to the demand from shippers can lead to very large rises in the rates offered.
This tends to drive up ship values and create new demand, or for major conversions
if the demand is very short term.
In assessing the market, a company must also take into account the supply of
shipyard capacity, part of which makes up their competition. The supply side of the
shipbuilding market, and other marine markets, is difficult to assess. There is no
universally accepted, or particularly accurate measure for the capacity of the world’s
shipyards. Compensated gross tonnes is often used, as it can be applied to different
ship types, but there are other factors which affect the actual capacity, such as labour
force availability, political influences and technological changes.
The supply of shipbuilding capacity depends on the capabilities of shipbuilding
facilities around the world, the output capacities of the shipbuilding facilities which
are capable and the current availability of those facilities.
The commercial function in a large shipyard may carry out its own research into
the market, or may commission a specialist research company to work on its behalf.
The outcome will be a forecast for the demand for ships which the shipyard is best
able to build. It is possible to forecast demand in general terms, but not so easily
for specific products in what is a large, made-to-order business. The market studies
will also examine the product life cycles for the ships, because knowing that demand
for current products is likely to disappear may also have to be taken into account.
Alternative scenarios may need to be considered for future production.
4 1 Background to the Industry

Specific potential contracts will always require direct approaches to potential

customers. To assist in approaching shipping companies, using the information
gained from a market study, the technical design function can prepare outline
designs for potential products. These may be new products, incorporating radical
developments or may be current products with small updates.
There is also competition to manage. Even companies which dominate niche
markets may have problems with the possible exception of builders of cruise ships
and military ships.
Having briefly considered the shipbuilding market, it is worthwhile now to offer
a brief review of major changes in shipbuilding over the last 200 years. It includes
the change from wood to iron as the main structural material, then the development
of steel ships, increases in size and in the variety of ships. Changes in propulsion
include the move from sail to steam, motor and more recently electric ships. There is
also an increased complexity in equipment fitted aboard the ships which has affected
how the industry operates.
Where and when shipbuilding started is uncertain. However, Pacific islands,
Australia and New Zealand were populated around 50,000 years ago and given the
distances from other continents it is reasonable to suppose that substantial boats or
rafts were being created to carry groups and their belongings.
The Mediterranean was an early centre of human development and therefore trade.
Egyptian vessels made of wood have been traced to around 4000 BCE. They are also
known to have built boats of papyrus bundles. Early trade tended to stay close to
coasts, because the vessels available were not strong enough for deep water travel,
navigation was difficult and so the crew (and the vessel if necessary) could spend
nights on shore. A number of archaeological finds have been made of ships from early
Mediterranean trading ports, which demonstrate shipbuilding techniques in wood.
China had early shipbuilders, as did Malaysia and other Asian communities, and
trade in various regions of the World was well developed by around 1000 BCE. Ships
were relatively small, and fragile, mainly made from wood and powered by sail or
oars. Deep water voyages were still difficult and so trade mainly remained coastal or
in sheltered waters. The small vessels could also trade along many rivers.
Despite their limitations, early ships were very important to permit large scale
trade in eras of limited roads which made overland trade in any quantity difficult and
slow. Even a small ship can carry many tonnes of cargo, equivalent to tens of carts
or hundreds of pack animals.
In the first millennium CE, Chinese voyages in larger vessels are recorded, and
other Asian nations are known to have traded considerable distances. Some Euro-
peans were trading into and probably across the Atlantic before the generally accepted
dates of discovery. China invented the rudder, improving sailing ship capabilities and
larger ships were built world wide. In the second millennium, major trades were estab-
lished across the globe, and explorers began to link the different regions establishing
genuine, global seaborne trade.
Until 1800 there were modest improvements in ships in terms of capability and
size, but the construction from wood generally imposed limitations with a maximum
1 Background to the Industry 5

convenient length of around 60–70 m. Sail power limited the ability to trade because
ships could only sail with the wind behind them or to a limited extent from the side.
To construct a ship required a sheltered site adjacent to water with adequate
depth, a slope so the completed hull could slide into the water, access to large quan-
tities of timber and a workforce. Of the workforce only a small number needed
very specialised skills, primarily in developing the shapes of parts and fitting them
together. Given the slow speed of construction, and the manual labour involved, a
few skilled shipwrights could direct the work. Ships were built by identifying suit-
able trees, often using curved branches to allow strong frames with the wood grain
along their length. These were then cut, taken to the construction site, seasoned, cut
to shape and then fitted piece by piece to the hull. Masts and spars were made as
far as possible from single, tall, straight trees, often imported to Europe from North
America or the Baltic. The few metal fittings could usually be made locally.
The abundance of wood on the North American East coast, alongside a growing
population of some 5 million (compared to 10 million in Britain and 5 million
in Ireland) made the UK colonies in North Americaan an ideal location. The
Atlantic trade created a large demand for ships and along with the UK itself, the
New England shipbuilders dominated Atlantic shipbuilding. This continued into the
nineteenth century.
The industrial revolution, among other developments, produced steam power and
the ability to produce iron in significant quantities. Early proposals were made for
steam powered vessels in the late eighteenth century, in the UK, France and the USA.
The first quarter of the nineteenth century saw some practical examples of paddle
steamers. By 1850, propeller driven steam ships were employed on trades across the
world, with building led by the UK as the first major industrial centre.
From 1850, steel production was improved and so steel gradually replaced iron as
the major shipbuilding material. The basic construction process did not significantly
change during this period. Most commercial ships were still relatively small, and
were built up from the keel, piece by piece, in the same way as timber ships. Engines
were required, and most shipyards built their own, along with the pumps, winches
and other equipment. A ship plate weighing one or two tonnes was the largest item
to be lifted, and the work remained dependent on a lot of unskilled manpower.
It is worth pointing out at this stage that there are always exceptions to the typical
situation in ship construction. From the Great Eastern of I K Brunel in 1854, through
major warships of the late nineteenth century and large passenger liners, particu-
larly on the trans-Atlantic trade, some ships have required different approaches to
construction. Large ships and major items of equipment have needed heavy lifting
capability as an example.
Military ships have often differed in their construction and management. Although
most ships were built on inclines to simplify launching, warships have sometimes
been constructed in dry docks, since ancient times. Major arsenals existed in ancient
Greece, Rome, mediaeval Venice, Genoa, and other cities. An example can still be
found in Barcelona, where the maritime museum is housed in the mediaeval naval
shipyard. There is a large, by the standards of the fourteenth century, dry dock and
various covered workshops and stores.
6 1 Background to the Industry

The start of the twentieth century saw the beginnings of modern shipbuilding.
Although most commercial ships remained small, generally below 100 metres in
length, some very large military and passenger ships were being constructed. Size
and military imperatives made faster construction desirable and larger cranes, still
tiny by current standards were introduced. There was an expansion in trade, and
therefore a corresponding increase in ship construction. The UK, which had become
the dominant shipbuilding nation in the nineteenth century continued in this role. In
some years 80% of merchant ships in the world were built in the UK. However, most
European countries were rapidly industrialising, notably Germany, France, Italy and
Spain and in the Far East Japan was creating a shipbuilding industry.
The new entrants to the business, without decades of traditional methods behind
them, were quicker to adopt new methods. Then industrialised shipbuilding for war
time needs was developed in the USA. High rates of production were largely achieved
mainly by using many building slipways. There were also some examples of use of
the mass production methods being found in other industries such as motor car
manufacture.
The 1930s saw a major depression once wartime losses had been replaced and
led to many shipyard closures. The shipbuilding industries in most cases in Europe
and the USA suffered. The UK in particular saw many shipyards closed. In Germany
and Japan, shipbuilding was partly protected as an important national asset. Protec-
tion for national industries has been common throughout history. Monarchs have
routinely awarded monopolies of specific trades to individuals and companies, and
more democratic governments have followed in more recent times.
Germany also made significant developments in the early use of electric welding.
The first welded ships were built over one hundred years ago but early techniques
were limited and welds were not always reliable. Even when welding became the
favoured joining method for steel ships, it was common to rivet the bilge plates and
other areas seen as crucial to ship safety.
Early diesel engines began to replace steam at a similar time, but the complete
replacement for commercial shipping took some fifty years.
A significant change, albeit one very localised, took place in the USA in the
1940s. The need to build large numbers of merchant ships, to replace losses, led to
the liberty ships. These were a basic general cargo ship, constructed to a standard
design created in the UK and mainly built in the USA. Many of the sites used were
new to shipbuilding, and production engineers played a major role in developing
the processes. The biggest change was to construct the ships from units, rather than
piece by piece. This massively reduced the construction time and in the longer term
set the pattern for most future shipbuilding.
Since the 1940s, there has been steady progress in the development of the ship-
building industry, led by the increasing sizes of oil tankers, followed by bulk carriers
and container ships. Passenger ships, which were the largest ship type from the late
nineteenth century, are the most recent to follow the trend of further size increase.
Size dictated the need for large steel workshops, large docks and cranes. There was
then a requirement for faster outfitting as ships have become more complex and
simply to keep pace with the speed of hull construction.
1 Background to the Industry 7

Periods of expansion of the world-wide industry, generally followed by downturns

in the market have required shipyards to concentrate on improving productivity,
which has been supported by the rapid development of computers and the use of these
for design. Some computers were to be found in shipyards in the 1960s, for some
design and production activities, but mainly for office functions especially payrolls.
This has expanded massively into management information systems to support all
aspects of the shipyard operations.
The developments since 1945 can be very roughly divided into phases of techno-
logical change. The first phase, up to around 1950 continued with earlier practice,
with ships built on slipways, directly from piece parts so the ship was in a fixed
position. Much of the outfitting was completed after launch of the hull.
The second phase from 1950 to around 1965 saw two major changes. First the
increase in ship size, especially oil tankers, demanded large docks to accommodate
them with enhanced steel workshops and large cranes to lift units and blocks. The
Burmeister and Wain shipyard in Denmark created a new shipyard with a dry dock
and large portal crane which was the pattern for most subsequent shipyards.
The larger blocks were needed to avoid an excessive time to construct the hulls.
To support the increase in the volume of steel used, there was also mechanisation of
particularly the initial production processes, cutting parts and sub-assembly. Japan,
partly by investing in new shipyards but also by adopting good management practices,
became the largest shipbuilding nation.
The third phase from 1965 to 1980 started with a large expansion in demand for
ships, and corresponding increase in shipyards, especially for larger ships. Further
expansion of shipyards followed, including the start of the South Korean industry as a
major component of that nation’s industrialisation. There was further mechanisation
of the steel-working activities, for example the panel line was developed for the larger
ships being built. Outfitting was increasingly completed before the ship was afloat,
and delivery shortly afterwards became usual. Some vary advanced facilities were
developed, in Scandinavia and Japan in particular. A few shipyards were largely or
completely undercover, generally for smaller ships.
At the mid-point of the phase, a massive increase in the price of crude oil brought
much shipping trade to a halt and shipbuilding entered a recession. Many contracts
were cancelled, although some expansion of capacity in the world did continue.
The fourth phase, from approximately 1980 to 1995 saw a lot of consolidation
in the industry. Some countries completely or largely abandoned shipbuilding and
those that did not were forced to provide large subsidies. Others, notably China,
continued to expand. There was a major emphasis on productivity and efficiency and
developments in technology focussed on the management. This included significant
investments in computer technology for design and production control.
The fifth phase from 1995 to 2010 saw further new shipyard developments, largely
in anticipation of a new expansion of demand which was forecast in several countries.
The use of computers continued to expand, with greater capabilities. New facilities
used the same physical plant and equipment as for the preceding decades, with
incremental improvements in specific technologies available.
8 1 Background to the Industry

Since 2010, the size of the world fleet of commercial ships has reached its largest
ever. Very large container ships have been built, to join the tankers and bulk carriers,
along with many new passenger cruise ships. Technology in terms of the integration
of design and production has developed further. Emphasis has been on efficiency of
production.
South Korea has continued as the leading shipbuilding nation, closely followed
by China. The Korean industry is very efficient at constructing ships. China is behind
in terms of efficiency but has the benefit of lower wages so far.
Estimates of world shipbuilding capacity vary, but AWES figures are reasonably
reliable. Using millions of CGT as the measure was over twenty million in 1975
and 2000. In the mid 1980s capacity fell to fifteen million CGT, but there was still
a surplus capacity of nearly 30%. In 2020 the World can build around thirty million
CGT annually.
How the international shipbuilding industry will develop is the subject of many
studies, and it is not the intention with this book to add to them. Rather the focus
will be on how best to manage an individual shipbuilding company, to survive and
prosper against whatever background occurs.