Shipping & Shipbuilding Industry in Shandong Province

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1 Shipping & Shipbuilding Industry in Shandong Province Overview Shandong Province is located at the east coast of China, in the middle of Beijing and Shanghai. It has a superior geographical environment with a coastline of over 3,000 km, rich natural and marine resources and the highest seaport concentration in China. With these advantages given by the geographical location, vigorous shipping activities, and a strong industrial base, has generated Shandong province traditionally its competitive advantages in shipping and shipbuilding industry over the other provinces. Shipping Shandong province has a coastline of over 3,000 km and 1,150 km inland navigable mileage. The province has the highest concentration of seaport in China, with 473 seaport berths, including 197 over 10,000 ton berths. In 2010, the throughput of Shandong province s ports totaled 925 million tons, ranking the second in China. In terms of foreign trade throughput, Shandong province belongs to the top in China. Qingdao Port, Rizhao Port, and Yantai Port are the three key ports in Shandong province. Qingdao Port is has the highest throughout with 350 million tons in 2010, followed by Rizhao Port with 225 million tons and Yantai Port with 150 million tons. Shandong province is the only province with three ports whose throughput in total is over 100 million tons in China. Shipbuilding According to the 11 th five year plan ( ), Shandong province government has made a total investment to the shipbuilding industry of more than 50 billion yuan (5.6 billion euros) for renovation, upgrade and expansion in the industry. It has formed a complete industrial chain with synchronous development for shipbuilding industry, including shipbuilding, ship repairing, ocean equipment manufacturing, yacht manufacturing and other supporting industries. In 2010, the number of active large scale shipbuilders in Shandong province reached 127, contributing a total turnover of 51.5 billion yuan (5.7 billion euros) and net profits of 3.6 billion yuan (400 million euros). The yearly completion volume in 2010 was over 3 million DWT, 16.2 times larger than in in At this moment, there are 20 docks which have a Shipping & Shipbuilding Industry in Shandong Province NBSO Jinan & Qingdao 1

2 capacity of over 50,000 DWT each, including one 500,000 DWT dock, five 300,000 DWT docks. The total shipbuilding capacity has tripled since the 11 th five year plan ( ) to 6 million DWT and 10 ocean platforms by the end of Qingdao, Yantai, Weihai are three major shipbuilding bases in Shandong province. In 2010, they achieved a turnover of 32.5 billion yuan (3.6 billion euros) and completion volume of 2.94 million DWT, accounting for 63 percent and 98 percent of the province s total respectively. Moreover, key shipbuilders in Shandong province have seen a rapid expansion, and 18 of the key shipbuilders have achieved their turnovers over 1 billion yuan (110 million euros). The supporting industry strongly backed the building capability of large scale vessels. At the moment, there are over 50 varieties of general ship accessories produced in Shandong province, including steel plate, marine power equipment, anchoring equipment, boiler, pressure vessel, which have competitive advantages in domestic market; dual powered marine diesel, voyage data recorder (VDR), and marine butterfly valve have a leading position in domestic market; 4300 mm heavy plate, and other marine purpose steel plate series produced in Jinan Steel Group have been authenticated by the world classification societies, and heavy duty medium speed marine diesels manufactured at Zibo Diesel Co Ltd are among the top 3 in the domestic marine diesel market. Clusters Shipping Qingdao Port ( 7 th world largest port 8 th world largest port for container throughput 1 st China s largest port for crude oil import Rizhao Port ( 1 st China s largest port for iron ore, nearly 1/3 of China s total import iron ore handled in Rizhao Port Important port for chemical products in China, Vopak has invested in Rizhao Port for chemical logistics and storage Shipping & Shipbuilding Industry in Shandong Province NBSO Jinan & Qingdao 2

3 Yantai Port ( Focusing on foreign trade, minerals, fertilizer, foodstuff, and crude oil Shipbuilding Qingdao The shipbuilding industry is one of the pillar industries in Qingdao. Since the founding of the People s Republic of China, Qingdao was an important manufacturing base for military vessels at that time. Since 1990s, Qingdao successfully took the opportunities of industrial transfer for the global shipbuilding industry. With its experiences stretched over the last several decades and know hows in military vessels manufacturing, Qingdao has set up cooperation with China s largest shipbuilding and ship repairing company, and strived to develop the shipbuilding for civil use. At present, Qingdao is stated as a State Key Ship Export Base in China. Qingdao Haixiwan Shipbuilding Base the key clustered area for shipbuilding in Qingdao, now has 12 giant companies in shipbuilding, ocean equipment, and accessory manufacturing (i.e. marine diesels) in this area, with a total investment over 30 billion yuan (3,3 billion euros). These companies include Qingdao Beihai Shipbuilding Heavy Industry Co., Ltd. (BSIC), Offshore Oil Engineering (Qingdao) Co., Ltd. (subsidiary of China National Offshore Oil Corp., the largest offshore oil and gas producer in China), and Qingdao Offshore Engineering (Qingdao) Co., Ltd. (subsidiary of China National Petroleum Corporation). In 2010, the total industry volume for the Qingdao Haixiwan Shipbuilding Base reached 17.8 billion yuan (billion euros), a year on year growth of 114 percent; and the export totaled USD billion, up 77 percent year on year. The total completion volume of shipbuilding in the base was 1.44 million DWT. Qingdao Beihai Shipbuilding Heavy Industry Co., Ltd. (BSIC) Qingdao Beihai Shipbuilding Heavy Industry Co., Ltd. (BSIC), was established in 1898, and at present is one of the large key shipyards under the China Shipbuilding Industry Corporation (CSIC). The BSIC mainly undertakes various shipbuilding projects of commercial vessels and offshore engineering projects, including various triangle beam structures, drilling platforms and FPSO, various tanker ships, container ships, Shipping & Shipbuilding Industry in Shandong Province NBSO Jinan & Qingdao 3

4 large sized bulk cargo vessels and other various ships. Qingdao Shipyard Co., Ltd. (also known as Qingdao Yangfan Shipbuilding Co., Ltd.) Qingdao Shipyard Co Ltd and Qingdao Yangfan Shipbuilding Co Ltd were established from the reorganization of the former state owned factory Qingdao Shipyard, which was established in At present, Qingdao Shipyard Co Ltd aims at the manufacturing of military vessels, while Qingdao Yangfan Shipbuilding Co Ltd focuses on civil vessels and marine equipment. Qingdao Hyundai Shipbuilding Co., Ltd. Qingdao Hyundai Shipbuilding Co., Ltd. was established in 2005 as a JV (Hyundai has percent shareholding), with its registered capital of USD 70 million. The main business includes design, production and sales of ship parts and semi manufactured parts, ship repairing, remodeling and other related business. Qingdao Mastek Marine Engineering Co., Ltd. (QMME) QMME is the only company to provide total solution for ship design and marine engineering. Based on wide experience in the ship design, QMME provides total solution for saving production cost through improving overall ship design and shipbuilding business process. Weihai Weihai enjoys very much the geographical advantages of a long coastline, deep water harbors, and close proximity to Korea and Japan. The total shipbuilding capacity in Weihai accounts for 80 percent from Korea and Japan. The geographical advantage has made Weihai a natural place for shipbuilding industry. At present, there are 112 shipbuilding companies in Weihai. A relatively complete shipbuilding industrial chain has been formed, consisting of multi purpose cargo carrier, car carrier, bulk carrier, oil tankers, chemical carrier, etc., as well as supplemental component and parts. The vessels have been exported to over 20 countries and regions. Foreign shipbuilding enterprises have also invested in Weihai, Shipping & Shipbuilding Industry in Shandong Province NBSO Jinan & Qingdao 4

5 including Samsung Heavy Industry, Gaya Heavy Industry, and Samjin Shipbuilding from South Korea. In 2010, the shipbuilding completion volume in Weihai reached to 1.26 million DWT, 38 percent higher than 2009; the turnover of shipbuilding industry in Weihai increased by 27 percent to 10 billion yuan (1,1 billion euros); and the export of shipbuilding industry in Weihai totaled USD 900 million, up 53 percent year on year. AVIC Weihai Shipyard Co., Ltd. shipyard.com/ AVIC Weihai Shipyard, a backbone state owned enterprise specialized in shipbuilding and ship repairing, has over 3,600 staffs, including 400 professional technicians. With total assets of RMB 1.3 billion, the shipyard is capable of building various kinds of vessels up to 100,000 DWT and repairing vessels up to 100,000 DWT. So far Weihai Shipyard has built over 300 vessels of container vessel, bulk carrier, etc. Huanghai Shipbuilding Co., Ltd. Established in 1944, Huanghai Shipbuilding Co Ltd is a medium size enterprise specialized in research and development of vessel technologies, ship repairing and shipbuilding. It is capable of designing, building, and repairing vessels below 50,000 DWT. In 2009, the company achieved a total turnover of 2.8 billion Yuan (0,3 billion euros) and a profit of 550 million Yuan (61 million euros). Samsung Heavy Industry (Rongcheng) Co., Ltd. (SHRC) Samsung Heavy Indstries (Rongcheng) Co., Ltd. (SHRC) was established in 2006 with the total investment of USD 500 million. SHRC is the second shipbuilding base of Samsung Heavy Industries (SHI) in China, main business covers block manufacturing of large vessels, e.g. large container carrier, liquefied gas carrier, drilling vessel, large oil tanker, etc., and manufacturing of oil rig and offshore structure. Shandong Deltamarin Marine Engineering Co., Ltd. In 2006, the Finnish private owned company Delta Sigma Ltd (owner of Deltamarin Ltd and Deltamarin Contracting Ltd) and the Chinese state owned company Shandong Weihai Shipyard Co., Ltd established a JV to provide technical and Shipping & Shipbuilding Industry in Shandong Province NBSO Jinan & Qingdao 5

6 engineering services to Chinese shipbuilding and marine industry market. Yantai Yantai has gained a dominant position in manufacturing of special purpose vessels and ocean equipment. By the end of 2010, there are 24 shipbuilding and ocean equipment manufacturers in Yantai, with a yearly shipbuilding capability of 2.2 million DWT, production capability of 300,000 tons of ship blocks, and 250,000 tons of offshore equipment. Yantai has a market share of 25 percent of global semi submersible offshore drilling platforms, ranking top in China and the third in the world. Daewoo Shipbuilding & Marine Engineering (Shandong) Co., Ltd. (DSME Shandong) DSME SHANDONG CO., LTD. (DSSC) was established as a WFOE by DSME in 2005, with a total investment of USD 190 million. Its main products include offshore drilling platform and blocks for vessels. Yantai CIMC Raffles Offshore Ltd. (CIMC Raffles) raffles.com Yantai CIMC Raffles Offshore Ltd. was established in 1994 as a JV by Yantai Shipyard Factory (founded in 1977) and a Singaporean company. It is an integrated offshore builder capable of engineering, construction and commissioning of large offshore vessels. CIMC Raffles employs nearly 4,000 staff and another 8,000 sub contracted workers. As one of the largest offshore builders in China, CIMC Raffles specializes in semi submersible platforms, jack up platforms and special purpose offshore vessels. Penglai Zhongbai Jinglu Ship Industry Co., Ltd. Penglai Zhongbai Jinglu Ship Industry Co Ltd was established in 2006, with a total investment of USD 330 million. It focuses on shipbuilding and ocean engineering manufacturing, and is listed as a major shipbuilding enterprise in the 11th Five Year Plan of Shipbuilding Industry in Shandong Province. Penglai Bohai Shipyard Co., Ltd. Shipping & Shipbuilding Industry in Shandong Province NBSO Jinan & Qingdao 6

7 The company, founded in 1958, has become a professional manufacturer of ships with over fifty years of development. Penglai Bohai Shipyard Co., Ltd. is a modern ship assembly base integrating the design, production and management. The vessels have been widely accepted in the domestic market, and also exported to the world market, including Canada, the Netherlands, Germany, Singapore, Japan, Pakistan, etc. Foreign Players In late 1990s, China already established a relatively complete industrial system, and the processing and manufacturing capabilities were rapidly improving. China also had an obvious cost advantage in raw materials and labors. For example, the labor costs in China s shipbuilding industry simply accounts for 1/9 of in Korea, and even lower amount of 1/17 compared to Japan. Furthermore, the global market demand for large ships, e.g. oil tankers, container carriers, LPG carriers has seen a boost in the past decade. All these factors have made it possible for the international shipbuilders to transfer their manufacturing bases to China, or find some partners to cooperate in China. Some foreign players began to enter the Chinese market by setting up JVs or WFOEs in Shandong province, including international giants such as Hyundai, Daewoo and Samsung. Korea contributed most to Shandong s shipbuilding industry due to rather convenient logistics, moreover, Singapore and Finland also have set up JVs in Shandong s shipbuilding industry. However, these foreign investors only transfer their block manufacturing for large ships and small to medium size ships with relatively low technical standards in Shandong province. Qingdao Hyundai Shipbuilding Co., Ltd. Located in Qingdao, a JV with Korea, established in 2005, Hyundai has 80 percent shareholdings. DSME Shandong Co., Ltd. Located in Yantai, a WFOE of Korea, established in Samsung Heavy Industry (Rongcheng) Co., Ltd. Located in Weihai, established in 2006, the second shipbuilding base of Samsung Heavy Industries in China. Gaya Heavy Industry (Weihai) Co., Ltd. Located in Weihai, a JV with Korea. Shipping & Shipbuilding Industry in Shandong Province NBSO Jinan & Qingdao 7

8 Yantai CIMC Raffles Offshore Ltd. Located in Yantai, a majority foreign owned JV established in 1994 with Singapore. Shandong Deltamarin Marine Engineering Co., Ltd. A JV of Weihai Shipyard Factory and Deltamarin from Finland, mainly for ship design, R&D and consultancy service, etc. Qingdao Mastek Marine Engineering Co., Ltd. Located in Qingdao, a JV with Korean company, established in Regarding to shipping industry, a number of international shipping companies have set up representative offices in Shandong province, mostly located in Qingdao, e.g. MAERSK, AP, NYK, MOL, DHL, etc. Preferential Policies The Chinese central government and local governmental authorities in coastal areas have been consistently taking the shipbuilding industry as a significantly important industry, which will considerably stimulates the development of various sectors of local industries and creates job opportunities in the domestic market. In 2009, during the worldwide economic recession, the Chinese shipbuilding industry was facing a decrease of new orders and increasing risks for order cancellation, delayed acceptance, and even vessel abandonment from ship owners. Shandong Provincial Government has approved the Adjustment and Revitalization Plan for Shandong s Ship Industry in 2010, which gave out ever intensive supporting policies in financing, governmental fund, tax refund, and R&D investment to Shandong s shipbuilding industry as following. Shipping Continuously optimize the geographical distribution and seaport function, and carry forward the infrastructure construction of seaports, especially key large and comprehensive seaports which play an important role in national and regional logistic development strategies. In the 12th Five Year Plan, there will new construct about 440 deep water berths in China, mainly leaning to dock construction for bulk commodities, e.g. coal, crude oil, iron ore, and containers. Accelerate the construction of high grade inland waterway, taking full advantage Shipping & Shipbuilding Industry in Shandong Province NBSO Jinan & Qingdao 8

9 of inland shipping, especially the construction and upgrade of Yangtze River waterway, and improve the standard of shipping service. Set emphases on the construction of Chongqing shipping centers in upper reach of Yangtze River and Wuhan shipping center in middle reach of Yangtze River. Renovate and upgrade old seaport areas, to enhance the working capacity, technical and maintenance level of existing facilities, as well as managerial profession. Improve the technical level of transportation equipment, encourage the utilization of large scale and special purpose vessels, e.g. Liquefied Gas Carriers (LGC) and ro ro vessels. Improve the safety performance and maintenance level of active vessels. Integrate with modern information technology, to enhance the service standard and efficiency. Establish key demonstration projects of container multimodal transport information system. Continue to construct a fairly well integrated transportation system in China covering ocean, coastal, inland shipping network, railway network, and highway network. Shipbuilding Relevant banks in China should give full and timely financing support to shipbuilding companies. Encourage financial institute to increase the supply of credit funds to ship exporters in China. Encourage Chinese key shipbuilding companies to take over abandonment ships from ocean shipping companies, and encourage financial leasing companies to take over abandonment ships from ship exporters in China. Expand the domestic market demand for ships. Continuously give tax refund policy and increase the capital investment. Speed up elimination of old ships and single hull tankers. Strict exam and approval for new production capacity. Encourage mergers and acquisitions in shipbuilding industry. Increase R&D investment in shipbuilding industry, especially supporting tech intensive ships, key marine equipment and advanced shipbuilding technologies. Weakness Shipping & Shipbuilding Industry in Shandong Province NBSO Jinan & Qingdao 9

10 Shandong province s shipbuilding industry has made remarkable development in the past decades, and a number of international shipbuilding giants have already invested in the province. Shandong province s shipbuilding industry is large in scale at the moment; however, further development is needed to grade its technology. Products are on a relatively low technical level, not able to build large, tech intensive and high value added vessels, i.e. very large container ship (VLCS) and LNG carrier. The foreign shipbuilders invested in Shandong are taking the advantage of low labor cost and other low costs for instance land use cost and environmental production cost. Most of them only produce vessel blocks instead of entire vessels, or just produce small to medium sized vessels with low technologies in Shandong province. Therefore, the general manufacturing level of local shipbuilders is still very low. Lack of advanced industrial know how, R&D capabilities and core technologies. Foreign shipbuilders always complete the design and R&D work outside China. Meanwhile, the new standards and regulations in world shipbuilding industry have higher and stricter requirements to ships on engineering, safety, emission control, etc., and local shipbuilders and R&D teams are still weak about industrial know how and R&D capabilities. Key components and supporting accessories rely on import. The localization rate of marine equipment on exported vessels in Shandong province remains below 40 percent, compared to 85 percent in Korea and 97.8 percent in Japan. Over 80 percent exported large vessels of over 10,000 DWT require foreign brand marine diesels and automation systems. Managerial capability and risk resistance capacity in shortfall. Although foreign companies have brought advanced managerial experiences to Shandong province, while in general, the local shipbuilders are still working on a low managerial standard, which may lead to lack of competitive advantage and low risk resistance capacity. Opportunities Sourcing vessels at preferable prices in Shandong province Shipping & Shipbuilding Industry in Shandong Province NBSO Jinan & Qingdao 10

11 Help local companies to improve capabilities of vessel design and R&D Upgrade marine supporting industry, especially key marine equipment and component by exporting products or technologies Risk management and consultancy services Conclusion The shipbuilding industry in Shandong province is large in scale, but not yet competitive and strong compared to world leading shipbuilders. The biggest hurdle for further development at the moment lies on the lack of self dependent R&D and innovation capabilities in construction of entire ships and ship accessories. The opportunities for Dutch companies is found in the Dutch advanced experiences in shipbuilding, ship design, and other relevant consultancy services both on technical and managerial, to establish contact and exchange with local shipbuilders for potential cooperation. For shipping industry, as the gate to Europe, the Netherlands has the best practice of combined logistics system, which is hot topic throughout China. Dutch companies can use their industrial experience and know how to show the expertise in logistics planning and management. Shipping & Shipbuilding Industry in Shandong Province NBSO Jinan & Qingdao 11