Current status of the shipbuilding industry and its susceptibility to distortion

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1 Current status of the shipbuilding industry and its susceptibility to distortion Ministry of Land, Infrastructure, Transport and Tourism (MLIT), JAPAN Ministry of Land, Infrastructure, Transport and Tourism

Infrastructure, Transport and Tourism (MLIT), JAPAN

2 1. Current status of the shipbuilding market 2. Susceptibility to distortion

3 Current status of the shipbuilding industry World completions '0000GT 10,000 9,500 9,000 8,500 8,000 7,500 7,000 6,500 6,000 5,500 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, ,4203,392 2,753 2,782 2,5842,5542,546 1,819 1,8331,816 1,863 2,054 2,265 1,967 1,6931,682 1,591 1,685 1,5891,610 1,429 1,310 1,324 1,226 1,091 3,1703,129 3,338 3,613 4,017 4, (At Peak) 2012: Data as of 1 st Quarter (note)1. D ata Source : Lloyd's R esister. 2. Ship Size C overage : 100 G ross Tonnage and over. Others China Europa Korea Japan 5,212 5,732 6,769 7,707 9,643 2,851 A Calender Year

1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 (At Peak) 2012:

4 Current status of the shipbuilding industry '0000GT 17,000 16,000 15,000 14,000 13,000 12,000 11,000 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 1,385 1,323 1, ,691 1,909 1,687 1,119 World new orders 2,407 1,931 1,991 1,9421,558 1,2911,266 1,377 1,184 1,280 2,265 2,535 2,553 2,341 3,648 2,674 2,894 Others China Europa Korea Japan 4,609 3,650 2,880 7,400 7,720 6,000 9,960 16,483 8,800 3,360 8,240 5, (At Peak ) (note)1.d ata Source:JSEA report based on LR until1994. Lloyd's R esister "W orld Shipbuilding Statistics" from : Data as of 1 2. Ship Size C overage : 100 G ross Tonnage and over st Quarter A Calender Year

9,960 16,483 8,800 3,360 8,240 5,334 793 0 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

5 Current status of the shipbuilding industry World orderbook 36,807 '0000GT 38,000 36,000 Others China Europa Korea Japan 32,973, 30,051 26,102 34,000 32,000 30,000 28,000 26,000 20, , 21, , 20,970 24,000 22,000 20,000 11,219 14,621 16,402 18,000 16,000 14,000 12,000 10,000 7,110 7,492 7,579 5,662 5,739 5,887 3,979 4,316 3,463 3,531 2,917 3,262 3,069 2,586 2,136 2,254 2,455 3,106 3,733 3,924 4,579 4,853 4,531 8,000 6,000 4, (At Peak ) (note)1.d ata Source : Lloyd's R esister. 2012: Data as of 1 st Quarter 2.Ship Size C overage : 100 G ross Tonnage and over A Calender Year 2,000

3,069 2,586 2,136 2,254 2,455 3,106 3,733 3,924 4,579 4,853 4,531 8,000 6,000 4,000 0

6 Current status of the shipbuilding industry 6 Future prospect for Supply-Demand gaps New orders Completions 0000GT 12,000 16, GT 12,000 Significant Gaps 10,000 8,000 China Korea Japan EU Others 7,400 7,720 9,960 8,800 8,240 10,000 8,000 中 China 国韓 Korea 国日 Japan 本欧 EU 州その Others 他 10,150 9,643 7,707 6,769 6,000 6,000 5,334 6,000 5,212 5,732 4,697 4,000 3,650 2,880 3,360 4,000 3,560 3,338 3,129 4,040 2,000 2, Data source: Lloyd s Register and Clarkson

10,150 9,643 7,707 6,769 6,000 6,000 5,334 6,000 5,212 5,732 4,697 4,000 3,650 2,880 3,360 4,000 3,560 3,338 3,129 4,040 2,000 2,000 0 2001 2002 2003

7 What is market distortion? Definition of market distortion by Worldyards Actions aimed at either the supply side or the demand side that would result in a shift in the supply and demand curves that would otherwise be expected absent those actions. Examples of government measures (C/WP6(2012)15, page 7) Supply side : debt forgiveness for builders, direct subsidies to shipbuilders Demand side: locally built requirements These aim to increase the demand, i.e., the number of vessels for home shipbuilders.

a shift in the supply and demand curves that would otherwise be expected absent those actions.

8 Why do governments intervene? Why do governments aim to increase the number of vessels for home shipbuilders? Shipbuilding as a strategic industry capable of delivering public policy outcomes Examples (OECD WP6 report, Factors affecting the structure of the world shipbuilding industry, November 2007) - Employment generator - Contributor to industrial capacity - Strengthen technical and technological capability - Defence Capability - Investment Vehicle

Factors affecting the structure of the world shipbuilding industry, November 2007) - Employment generator -

9 Discussions How susceptible is the shipbuilding industry to distortions? <Suggested discussion points by the Secretariat> Is shipbuilding more, or less, susceptible to distortions than other industry sectors? [Sub-questions] Is shipbuilding likely to be an industry that governments are inclined to support? The answer depends on the recognition of governments on how important the shipbuilding industry for their countries. Do government measures supporting for the shipbuilding industry have impact on the world shipbuilding industry? It may depend on scales and types of measures taken, but considering the global nature of the industry, consequences of such measures are likely to be global even if the measures are implemented locally.

[Sub-questions] Is shipbuilding likely to be an industry that governments are inclined to support?

10 Discussions Do regular boom-bust cycles exacerbate the risk of distortions in the market? If there is overcapacity in the industry, can this act as a catalyst for distortion in the market? Yes. Boom-bust cycles contribute to occurrence of significant gaps between supply and demand of ships. When this happens, in particular in case of overcapacity, governments may consider supporting measures to increase the demand for their home shipbuilders. What is the likelihood of market distortion given current economic circumstances? It depends on the magnitude of the gaps and governments recognition on the importance of the shipbuilding industry. Let s see what happened in the past.

Boom-bust cycles contribute to occurrence of significant gaps between supply and demand of ships.

11 Past shipbuilding recessions Transition of the world shipbuilding industry New Orders, Completions (1000GT) st Oilshock Orderbooks (1000GT) st Curtailment of the capacity 2nd Oilshock 2nd Curtailment of the capacity Year Orderbooks Completions New Orders 0

1st Curtailment of the capacity 2nd Oilshock 2nd Curtailment of the capacity 100000 80000 60000 20000

12 ~ Past shipbuilding recessions Chronological Table of Actions taken International Market Within Japan Dialogue 1950s 50% share of the world shipbuilding market 1st Oil Crisis - Sharp fall of tanker market extremely glutted market - extreme price competition 'General Guidelines For Government Policies in the Shipbuilding Industry' (OECD) Amendment of the General Guidelines in 1976 (OECD) 'Handy Bulk boom' Plaza Accord Friction between Japan and Europe 2nd Oil Crisis 'Mini boom' in the dry cargo market extremely glutted market Instruction of the export price 1st Curtailment of the shipbuilding facility (37%) 2nd Curtailment of the shipbuilding facility (23%) The beginning of rapid development of the shipbuilding industry Operation control Recession Operation control Recession

Amendment of the General Guidelines in 1976 (OECD) 'Handy Bulk boom' 1984 1985 Plaza Accord 1986 1987 1988 1989 Friction between Japan and Europe 2nd Oil Crisis 'Mini boom' in the dry cargo market

Past shipbuilding recessions Year 1979 World market share Japan:Europe = 1:1 Common understanding of necessity for restructuring policy ~Japan~ Capacity reduction by government initiative ~Europe~

13 Past shipbuilding recessions Year 1979 World market share Japan:Europe = 1:1 Common understanding of necessity for restructuring policy ~Japan~ Capacity reduction by government initiative ~Europe~ Subsidy reduction by EU Goal of world supply reduction Year 2011 World market share Korea 35% Japan 19% China 39% EU 2% Common understanding of sustainability for the world ship building industry How? What?

Subsidy reduction by EU Goal of world supply reduction Year 2011 World market share Korea 35% Japan

14 Summary There are and will be significant gaps between supply and demand in the shipbuilding industry. Huge gaps provide strong interests for governments to take measures to support the industry. Measures targeting on demand side are likely to have negative global market distorting impacts and delay the market adjustment to imbalance of supply and demand. Compared to the past recession, major shipbuilding countries had changed: Now, China, Korea and Japan. For China and Korea, this will be a first time to face such severe overcapacity.

Measures targeting on demand side are likely to have negative global market distorting impacts and delay the market adjustment to

15 Thank you for your kind attention. Ministry of Land, Infrastructure, Transport and Tourism

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