Each shipyard is to a large extent capable of building multiple types of vessels. Theoretically, the physical size of the dry docks, the floating docks or the slipway may restrict some yards from building larger sized ships. In practice, however, each shipyard is specialised in a small number of specific ship types in order to optimise the building process and build the necessary expert know-how.
Shipyards the world over represent a large and diversified group. In terms of size and technical capacity, they range from small shipyards with less than 200 employees to the large yards with a labour force of more than 10,000. Shipbuilding is a complex process and it requires huge capital expenditure and a high level of technical expertise to design and build a merchant ship.
Depending on vessel type, it usually takes between 6 and 24 months from the signing of a contract until the vessel is delivered. If the shipyard’s orderbook is full, the building period may be extended.
Today most of the ships are built in the Far East where China and South Korea hold the top positions among shipbuilding nations. Over the past five years, Japan's South Korea's and China's combined share of total contracting and deliveries have averaged more than 90%.
The strong position held by countries in Asia is primarily due to the proportion of labour costs in the overall building process. The more labour-intensive a production process is, the more important it is to have low payroll and other associated costs. In this regard, countries in the Far East have enjoyed a competitive advantage over its counterparts in the western world for a large number of years. This is one of the reasons why shipyards in the Far East have increased their market share steadily since World War II.
Japan was the first country in Asia to enter the shipbuilding market, and the country held 50% of the market in 1969. Shipbuilding in South Korea grew intensively up through the 1980s, making it a contender for Japan's leadership position. In the 1990s, China also became a key player in the market, and the country is now the largest shipbuilding nation.
Nevertheless, European shipyards were still a significant competitor to the far-east shipyards in the 1990s when it came to vessel types with a high content of technological know-how. High technological know-how is particularly important in cruise ships, passenger ships, gas and chemical tankers and container ships. Over the years, the reliance of European shipyards on such a small selection of vessel types meant that the yards had suffered very low order intakes. September 11 and the subsequent global economic stagnation has had a particularly hard impact on the cruise industry, resulting in a low number of newbuildings. Furthermore, an increasing number of orders for quality and technical ships are now placed with Asian shipyards, which have gradually improved their skills. The proportion of ships manufactured in Europe fell from 32% in 1997 to a mere 9% in 2011. Measured in terms of deliveries, Turkey is now the principal shipbuilding nation in Europe, benefitting from a relatively inexpensive labour force compared with other European shipyards.
For many years, US shipyards have had a very low share of the global shipbuilding market. Today, US shipyards mainly build naval vessels and small coasters for navigating in US waters. The Merchant Marine Act of June 1920 (also known as the Jones Act) prohibits non-US-owned and non-US-built ships from carrying goods and persons between US ports. As a result, non-US-owned and non-US-built vessels may only call on one US port per journey.
Newbuilding prices are determined by supply and demand. The shipping companies are the buyers and the shipyards are the sellers.
Key factors on the demand side are freight rates, the price level of modern second-hand vessels, financial resources available to the shipping companies, access to credit and, most importantly, expectations for the future. Shipyard supply is governed by production costs, the slipway and the size of the orderbook.
In times of economic expansion, the shipyards most often have a large order backlog, pushing up newbuilding prices. The opposite happens during a recession – due to excess capacity the shipyards lower their newbuilding prices to tempt the shipping companies.