PWC Pvt. Ltd.
PWC Pvt. Ltd.
1. Global Scenario
In 2010 and 2011, the world economy embarked on a recovery path after the global financial meltdown in 2008 and 2009 with an average gross domestic product (GDP) growth at over 3%. Correlation between industrial activity, GDP growth, merchandise and seaborne trade remained strong during the period. Global seaborne trade grew to over 8.8 billion tons in 2011, indicating a 14% growth rate over 2009.
Source: Clarkson Research Services
The recent resurgence of global trade volumes has partially hurt the shipping industry, with charter rates still recorded at 40% of the rates in 2005. This is primarily attributed to the record deliveries of new vessels and substantial order book. According to shipbrokers Clarksons, owing to this trend coupled with over capacity, shipbuilding companies across the world continue to face tightening credit conditions and limited liquidity, forcing some small scale players to succumb to competitive pressures. The table depicts the key performance parameters of the shipbuilding industry –
Key performance indicators of global shipbuilding industry – million CGT
Source: Clarkson Research Services
In the short term, the global economy is expected to be fragile, as it is likely to encounter increased volatility and uncertainty. Certain niche segments like LNG, LPG and offshore will continue to post robust growth during the same period.
Shipbuilding industry forecast till 2015 – million CGT
Source: Clarkson Research Services
2. India Scenario
Compared to the global shipyard industry, the Indian shipyard industry is relatively smaller in size both in terms of capacity and market reach. The total shipbuilding capacity in 2009-10 was estimated at 0.47 million DWT, of which 60% (0.28 million DWT) was contributed by the public sector. The capacity grew by about 1.5% in comparison with 2008-09 with the CAGR being around 9% since 2006-07.
As per the latest statistics released by Ministry of Shipping, the order book as of March 2010 stands at 420 ships, of which 199 (0.38 million DWT) are in public sector yards and 221 (2.18 million DWT) are in private sector yards. Bulk cargo vessels account for significant share in the order book position, followed by dry cargo, tankers and others.
The total ship repair capacity in 2009-10 stood at 0.34 million DWT, dominated by the public sector with 77% share. Installed capacity of major public and private sector players is depicted in the figure below:
A total of 240 ships were repaired in 2009-10, as against 236 in 2008-09. The CAGR from 2006-07 to 2009-10 has been about 6%. The below figure represents the profile of ships repaired from 2006-07 to 2009-10:
The ship repair revenues contributed marginally to the overall industry revenues. However, ship repair revenues have shown a marginally stronger revenue growth as against shipbuilding revenues from 2006-07 onwards.
The industry projections as per Indian Shipbuilders Association (ISBA) and Planning Commission are shown below:
3. Industry scenario in Gujarat
Gujarat accounts for a significant proportion of the total seaborne trade to and from India, consistently accounting for over 20% of total traffic in the last 5 years. Port capacity has grown to over 285 million tons in 2010-11, indicating a CAGR of 12% in the last 5 years.
Gujarat boasts of 60% share of the Indian shipbuilding order book, with over 10 operational projects with a combined capacity of 1.11 million DWT.
4. Major growth drivers
The growth drivers for the industry as a whole are –
- Indian EXIM Trade - Indian EXIM trade is being increasingly serviced by foreign flagged vessels whose share in the Indian shipping market has increased from 60% in 1980s to about 92% by 2009-2010. This is both a cause of concern and a huge opportunity for India’s shipping and ship building sector
- Multiplier and downstream benefits – Shipbuilding sector has a strong multiplier effect on the economy and has associated benefits of spurring growth in many manufacturing sectors and thus generates huge employment opportunities. Many nations – especially developing ones – have realised this and promulgated policies to support and encourage this industry.
- Direct effect of ship building and ship repair can be witnessed on steel, forging & casting, marine machinery, machine tools, construction equipment, control gears, etc. – this linkage results in increased R&D investments, long term orders and development of specialized human resource and technological base in these sectors.
- Potential in offshore drilling segment - Less than 25% of India’s offshore acreage has been explored. The total number of rigs deployed is expected to double in the next five years in South Asia.
- Defence (Navy) – As per ‘Navy Vision 2020’, 160 new vessels will be required by the year 2020. The total Coast Guard vessel fleet is also anticipated to increase to 250 vessels by end of 2020, from the present fleet of 95.
- Ship repair - Ship repair industry is manpower intensive & has a regional focus. Given that major ship-repair centres in Indian Ocean Route (IOR) heavily utilize skilled labour force from India, Indian yards have potential to emerge as ship repair centres of choice.
Some important factors limiting the growth of the Indian industry are –
- Lack of domestic industrial base in critical areas such as marine turbines and heavy engines, heavy forging and casting, specialized steel etc. India shipbuilding industry currently imports about 45-65% of its input which implies reliance on foreign suppliers and financial risk caused by foreign exchange fluctuations.
- The small size of the Indian industry by global standards results in diseconomies of scale in terms of bulk purchases and just-in-time supplies. The labour cost advantage of the Indian industry therefore gets seriously impacted because of these additional costs.
Some Gujarat specific developments are highlighted below –
- The Gujarat government, with Gujarat Maritime Board as a nodal agency, has decided to develop few clusters as marine shipbuilding parks (MSPs) to give fillip to the shipbuilding industry. The locations identified are – along the north bank of Narmada river in Dahej (in the vicinity of the upcoming PCPIR), old Bhavnagar port, near Mahuva in the Bhavnagar, coastline between Navlakhi and Jodiya in northern Saurashtra, and near Mandvi in the Gulf of Kutch. Each MSP will have common infrastructure such as internal service roads, un-interrupted water and power supply, dredging, navigational facilities etc. GMB will assist private developers in getting clearances and other statutory approvals.
- Government of Japan and Gujarat Maritime Board (GMB) have signed a MoU for INR 100 crore to upgrade the Alang Ship breaking yard to international requirements by way of technology transfer and financial assistance under a Public-Private Partnership (PPP). The modernized Alang yard will be ready by 2012-13.
- Gujarat has a well developed base of key raw materials for ship building industry (steel and steel consumables, fabricated metal products, pipes and tubes, industrial valves, electronics, etc). Moreover, there are various engineering clusters planned to further support and strengthen the shipping industry.
Thus, Gujarat is well-placed to target a capacity of 3 million DWT in the short term – and is committed to maintain its majority share in national shipbuilding/repair market.
Bhaskar is an Associate Director with PricewaterhouseCoopers Pvt. Ltd. He has led multi locational and cross functional teams on various consulting assignments for diverse set of clients. Bhaskar brings with him a rich experience of over 20 years of management consulting, with exposure in the areas of port and port led development, special economic zones (SEZ), investment regions, urban infrastructure, tourism etc. He has worked on PPP transactions as well as policy, reforms and institutional development in infrastructure sectors. His key strengths are management of large teams, project management, providing continued guidance & assistance to team members and channelling inputs from various experts.
Bhaskar has successfully advised central and various State governments, international developmental agencies and private sector entities in areas like strategy, institutional development, finance & restructuring, policy & reforms. He has also spoken in and participated as panellist in several conferences and seminars across various infrastructure verticals.
Shrunkhal is a consultant with PricewaterhouseCoopers Pvt. Ltd. He has been an active team member of various cross functional teams for diverse set of clients. With an experience of over 5 years, his key focus sectors are port and port led development, shipbuilding, chemicals & petrochemicals, renewable energy, oil & gas, etc.
Shrunkhal has worked in areas like location assessment, techno-economic feasibility studies, market assessment, investment promotion, etc.