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com July, 2015 Vol 4 Issue 7 (Special Issue)

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Competitiveness of Indian Ship Building Industry

K. Muthuchelvi Thangam
Contract Faculty, Department of Naval Architecture & Ocean Engineering, Indian Maritime University,
Visakhapatnam Campus, Visakhapatnam, India
D. Sureshkumar
Scientist, SMDR, Indian Maritime University, Visakhapatnam campus, Visakhapatnam, India

Abstract:
The maritime history of Indian shipbuilding begins right from the time of civilization in Harappa and Mohenjo-Daro. The
shipbuilding industry in India was mainly carried on in the coastal territories like Cochin, Goa, Mumbai, Gujarat, Kolkata, and
Andhra Pradesh. Capacity constraints in leading countries and lower shipbuilding costs (cheap labor) in emerging countries
prompted a gradual shift of shipbuilding activities from Europe to Asia since the early 90s. This has thrown open opportunities
for the Indian shipbuilding industry. Rising global trade and strong replacement demand boosted the prospects of the Indian
shipbuilding industry. From an industry dependent on government orders till late 90s, the Indian shipbuilding industry have
turned export oriented focusing on the niche offshore segment. Export orders comprise about 80 per cent of the total market and
domestic orders the rest. The Indian Shipbuilding Industry, which had only about 0.1 per cent share of the world shipbuilding in
2002, expanded over tenfold accounting for 1% of the global shipbuilding industry with annual turnover of around US $ 1.3
billion in 2011 and has been growing at a compounded annual growth rate (CAGR) of about 8 per cent. The Indian shipbuilders
occupied 6th rank globally accounting for 1% of the global order book aggregating 2.4 million CGT with 257 vessels on order in
year ending 2010. In view of the ageing fleet of offshore vessels globally with approximately 40% of the offshore vessels above 20
years of age, the specialization of Indian shipbuilders in the construction of offshore vessels augurs well for the Indian yards. The
domestic shipbuilding industry comprise of 32 shipyards. Riding on a high growth trajectory, the shipbuilding industry has
doubled its capacity from about 2.5 lakh dead weight tons (DWT) in March 2007 to five lakh DWT in 2011. This capacity was
created mainly for the export market, particularly in the small ship segment. India has emerged as a major destination for the
construction of offshore and oil industry ships like offshore supply vessels and anchor handling tugs. Given the inherent labor
intensive nature of the shipbuilding industry, India has a natural advantage by virtue of its lower cost of labor and availability of
skills. India also enjoys a long coastline of around 8,000 km long with several deep water ports serving as good locations for
setting up shipyards.

Keywords: Shipbuilding cost, industry competitiveness, Indias shipbuilding industry

1. Introduction
The ship building industry has changed supply bases to low cost destinations in the last century. New countries have gained
prominence, especially during boom periods. The current order book of Korea and Europe is tilted towards complex vessels such as
container ships and cruises, while that of emerging nations and China is dominated by bulk vessels.
The Indian Shipbuilding has all the resources and low labor cost to stand competitive in the World Shipbuilding. The Indian
shipbuilding is mainly centered on 27 shipyards comprising of public sector under central and state Governments and Private sector
shipyards.

2. Benefits of Shipbuilding Industry

Shipbuilding is a labor intensive industry. Heavy engineering industry is integrated with various core sectors for its demand. Being an
intermediate industry, its demand depends on end-user industries. Investment in shipbuilding can trigger additional investment in
related sectors such as steel and engineering goods manufacturing and consumables. Such scale of investment also lead to significant
multiplier benefits in terms of employment generation and investment in other manufacturing sectors as shown in Table 1.

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Sr. No. Industries Number of labors

1. Shipbuilding 97
2. Auto commercial Vehicles 12
3. Heavy Engineering 33
4. Construction Civil 18
Table 1: Labor employed /Turnover (INR mn) for various Industries
Source: KPMG Analysis

3. Shipbuilding Scenario in the World

The ship building market was dominated by Europe in the early 20th century. Slowly Japan has overtaken the position from Europe in
1950s. In the early 1970s South Korea entered the stage by offering lower wages and dominated the World market by 2000. Chinas
economic boom together with strategic choice to develop maritime industry activities has led to a strong increase in global market
share as shown in the Figure 1.

Figure 1: Market shares in CGT completed and delivered by major shipbuilding regions from 1970 to 2008.

Due to globalization new players are entering the stage. The last five years, India, Vietnam, the Philippines and Brazil have acquired
substantial order books and have become larger players. Partly this rise may be due to the boom in the shipbuilding industry which has
now come to an end and relatively low cost labors available in these industries.
Shipbuilding is a highly cyclic industry. The average span of the cycle is about 10 years however it depends on the World trade and
the economic situation of the leading counties in the World. There were several peaks and troughs in the last century which is evident
from the Figure2. The present slump situation in the World shipbuilding should surpass and reach the peak position positively in next
few years.

Figure 2: Cyclic nature of World Shipbuilding industry [Source: Clarkson Research services.]

4. Shipbuilding Scenario in India

India is an emerging country in many sectors. As of August 2007, India had the fourth largest order book of the world representing
1.2% of the total world market, thus being larger than any of the European shipbuilding countries. However, end of July 2008, they
were passed by the fast growing Vietnam and Philippines and are now ranked sixth. However Indian shipbuilding capacity is limited
and therefore the order book grew relatively low base level. The countrys order book consists of two third of dry bulk and one fifth of
tankers.

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Figure 3: Order book India by vessel type in 2007(% dwt) [source: CARE Research, 2008]

There are several large players in India. Table 2 shows some of the shipyards in India and their order book in CGT. A lot of new
investment are said to be made that will enlarge Indias capacity.

Rank world Yard Orderbook

54 ABG Shipyard 852
101 Pipavav Shipyard 407
125 Bharati Shipyard 279
Table 2: Top three shipyards in India as of December 31st, 2008 (in 1,000 CGT)
Source: Clarkson World Shipyard Monitor January 2009

Analysis report prevails that the Indian ship building industry is emerging into export orders by exporting some large and medium size
ships. A bulk export by CSL has emerged India as a major place for the construction of offshore and oil industry ships like Offshore
Supply Vessels (OSVs) and Anchor Handling Tugs. Thus, from an inward looking industry dependent on government orders, the
Indian shipbuilding industry is emerging as internationally competitive export led industry.

Figure 4: Domestic and export order of Indian shipbuilding Industry

Source: Planning commission report March 2007

Though there is highly favorable climate for export, there is relatively negative climate for domestic construction of ships for Indian
owners. The Indian shipbuilding industry is dependent on government support for subsidy. The main reason for this dependence is
infrastructure constraints of Indian yards. While foreign shipping companies are building their medium and small merchant ships in
India, Indian shipping companies are purchasing their ships from abroad both big and small. The present fiscal and statutory rules on
shipbuilding in the country are heavily loaded in favor of export and discourage construction of ships by Indian yards for Indian flag.
The growth of Chinese shipbuilding industry is now becoming a threat to almost all major shipbuilding nations as China is planning to
become the leading shipbuilding nation with an aim to corner more than 30 % global share by 2015. One of the reason for China being
number one position is mainly active in ship types that relatively labor intensive in comparison to other shipbuilding regions. India is
probably the only country that will be able to match the Chinese prices with its relatively low labor costs and industrial base for
manufacture of equipment. The table shown below clearly indicates the comparison of Shipbuilding in China and India.

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4.1. Shipbuilding

CHINA INDIA
Shipbuilding & Repair Yards 492 28
Manufacture of Equipment 148 nominal
No of Employees (total Industry) 2,87,702 60,000
Order book 40 m DWT 1.3 m DWT
Global share 19 20 % 1%
Steel availability High low
Minimal Labor cost (US $/hour) appro. 1.19 0.28
Table 3: comparison between China and India in the Shipbuilding Industry

5. Productivity in Shipbuilding
In shipbuilding, the term productivity is differently used by stakeholders since there is no universally accepted standard unit. Ship
owners, Government officials and Policy makers use productivity to compare the performance of two shipyards or shipbuilding
countries. Shipyards used productivity values to assess the efficiency at which they are working. They benchmark themselves and
subsequently attempt to improve their performance with respect to this benchmarked level. The numerical value of productivity such
as CGT/employee, per worker production, number of ships or DWT produced per year, resource utilization such as tonnes of steel
fabricated / number of employees, or annual CGT / shop area, profitability etc are used as a benchmark by a shipyard.
It can be noted that there are different approaches to measure productivity, depending upon the purpose for which productivity value is
being used in Shipbuilding. It can be observed that in shipbuilding, productivity units measure output Vs input or vice-versa. Multiple
productivity units do not help a customer to compare and identify the best performer.
To understand the shipbuilding scenario in India and to measure the productivity IMU Visakhapatnam campus is in the progress of
visiting the Shipyards in India and are collecting various data such as 1) Vessels built from the date of establishment, 2) Type of
vessels built so far, 3) Equipment and machinery list of the ship yards, 4) Manpower including permanent and contract, 5) Vessels
keel laid date, vessels delivery date, 6)DWT, GT etc. Currently the output of shipbuilding and productivity has been measured as per
the OECD measuring term cgt which includes the type and size of the vessel and the complexity involved in constructing the vessels.
However the term cgt may not be a correct measure when it comes to details, practically no shipyard builds a ship in the same way as
its competitors. One of the major differences is the production depth, ie the amount of parts and blocks produced in the shipyard
relative to the amount which is subcontracted to outside suppliers.
From the data collected from the above yards the productivity for the four yards were measured in terms of 1) Man-hour/cgt, 2) Ship
yard area/cgt, 3) Expenses /cgt. The Ship Production during the period is apportioned with available Literature and collected data
which follows a S-shaped pattern meaning that the production rate will be slow at the initial stage, gradually increases and slows down
at the time of delivery. Using the approach production calculations were carried out and shown in the following figures.

Figure 5: Averaged manhour/cgt for four Indian Shipyards

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Figure 6: Shipyard area/cgt for four Indian shipyard

Figure 7: Averaged expenses /cgt for four Indian Shipyards

Figure 8: Averaged cgt /year for four Indian Shipyards

Figure 9: Man-hour /cgt for four Indian shipyards

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From the Figure 5 and 6 it is seen that the average Indian four shipyards productivity in terms of man-hr / cgt is found to be around 238
and land area/cgt found around 14m2. Indian shipbuilding labor costs are estimated at 8 10% of the total shipbuilding costs. The above
results of productivity and profitability are low when compared to the leading shipbuilding nations. The variation in value may be due to
the order book. Being India in the competition of low cost labors still it need improvement in facilities, systems and labor productivity.
Automation is important, but improved organization systems and product development will play a major role.

6. Need to Improve Global Competitiveness of Indian Shipyards

The shipbuilding industry in India has not succeeded in building competitiveness primarily due to inadequate policy support, lack of
private participation and firm level inefficiencies. A comparative assessment of Indian shipbuilding industry vis--vis that of
competing countries points out to the following key points.

6.1. Supportive Government Policies: Major Factor in Establishing Global Competitiveness

The governments in all major shipbuilding countries have laid a thrust on development of the sector through formulation of supportive
policies and measures such as subsidies, financial aid, easy finance, tax benefits, preferential orders, etc,. Japanese and South Korean
shipbuilding industries received substantial government support during the 1970s and 80s, which helped them to emerge as top players
in the world. Over the last decade, the Chinese government has also taken several measures to foster the growth of its industry;
measures include direct aid, loss reimbursements, tax subsidies etc. Indian government too has provided various support measures to
the shipbuilding industry, but these have been largely directed towards the public sector.

6.2. Foreign Investments Have Helped In Building Global Competitiveness of Competing Nations
The South Korean government has taken active measures to stimulate FDI in the sector such as cutting corporate taxes, providing tax
incentive packages and reducing the trademark evaluation period. The Korean government has also established eight different
Foreign-Exclusive Industrial Complexes FEICs) inside national industrial complexes across the country can enjoy a 50 year rent free
lease in these complexes based on the level of investments. The foreign investment in ship building and shipping machinery sector has
helped the Korean ship building industry in receiving world class technology, which puts it at almost par with the Japanese
counterparts and way ahead of China and others. Singapore government also provides incentives schemes such as Approved
International Shipping Enterprise (AIS) scheme to attract shipping companies to reside in Singapore. There are currently more than
100 international shipping companies in Singapore, forming an important anchor for the International Maritime Centre. In India
though, present requirement to obtain multiple clearances covering land acquisition, environmental clearance, power and water etc.,
from various departments for new projects in shipbuilding acts as a deterrent to attracting investment into this sector.

6.3. Focus on Skill Development and R&D Is a Key Factor for Maintaining Competitiveness
The major shipbuilding countries viz. Japan and South Korea have taken special efforts towards skill development and R&D of the
shipbuilding industry. Japan established Shipbuilding Skill Development Centre in 2004, to develop training material and prepare
necessary equipment to support training efforts. With respect to R&D and innovation, Japans key measures include creating
replacement demand by developing environmentally friendly and safer ships. During the 1980s, the South Korean government
promoted University-Industry R&D activities which resulted in several collaborative initiatives. Recently, the Ministry of Knowledge
Economy of South Korea has initiated convergence of shipbuilding and IT sectors to support the Smart Ships agenda. However, in
India there is limited investment in R&D in ship designing and innovation. For overall growth of the industry, there is a need to create
an R&D base along with developing in-house design capability, infusing new technology, developing skilled workforce, adopting
appropriate fiscal measures and industry-friendly regulations, so that Indian shipbuilding can achieve credibility for delivering quality
ships on time.

6.4. Support to Ancillary Industries Enhances Competitiveness

Development of ancillary industries is critical for increasing cost competitiveness of shipbuilding and repairs. Both Japan and South
Korea have formulated suitable industrial policy for the shipbuilding and ship repair ancillary industry. The South Korean government
provides support to the ancillary industry by way of incentives, R&D support, and business to business network to increase the
indigenous contents of equipment in ships built by Korean yards.

6.5. Cost and Availability of Critical Input Material- Raw Material, Manpower and Technology
India has the lowest labor costs amongst the competing countries like China, Japan & Korea. The labor cost per worker in India is
estimated at $1,192 per year, against $10,743 and $21,317 per worker in leading shipbuilding countries like South Korea and
Singapore. However, this advantage is not translated into cost effectiveness because of factors like: reliance on imports of critical raw-
materials and higher financing costs etc. From raw material perspective, India relies on imports for most of the inputs consumed in
shipbuilding which puts cost pressures on Indian shipbuilding firms. On the other hand, China is one the cheapest steel manufacturer
in the world which helps its yards to reduce costs and lower their shipbuilding prices in the global market. Further, India has a
disadvantage with respect to financing costs. In China, the government provides sovereign refund guarantees for certain class of
vessels, thus removing any related burden on the shipyard. In Korea, shipyard financing has matured and the evolved mechanisms
drive the cost lower.

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6.6. Lower Interest Rates

A shipyard typically requires a working capital of around 25-35% of the cost of the ship during the entire construction period. The
interest rates on working capital in India are in the average range of 10-10.5%. In contrast, the interest rates presently offered to
shipbuilding yards overseas are significantly lower. They stand at 5-6% in Korea and around 4-8% in China.

6.7. Labor Productivity

Labor productivity for Indias shipbuilding sector is less than one-tenth of Japan & Korea. India had labor productivity of 11,134
US$/Employee in 2007 , while Japan and Korea had labor productivity of 151,487 US$/Employee and 122,994 US$/Employee
respectively .This gap in labor productivity has been due to several reasons like acute shortage of basic skills required for the industry
in India, small scale of operations etc. Workers working as welders, fitters, etc. are uneducated, in many cases even illiterate. The
technology used at the shipyard has to be friendly for them to use. There is lack of manpower with techno-economic specialization in
shipbuilding. Further, manufacturers in India also suffer from the disadvantages accruing from small scale of operations. The
shipbuilding sector in China and South Korea has received government fiscal and policy support, enabling them to develop scale as
well as a cluster of ancillaries. These advantages of scale are not available to Indian shipbuilding industry, and hence dent the overall
labor productivity.

6.8. Technological Processes and Innovation

India is lagging behind competitors in all the aspects of technology and innovation. India has disadvantage in terms of poor
infrastructure, innovation and less investments in Research & Development as compared to Korea, Japan and China. It may be noted
that leading East Asian shipyards in Japan and Korea who had invested heavily in skilled manpower such as naval architects &
engineers and innovations are reaping the benefits now. In India though, there are less than a dozen firms that have basic design
expertise. Some of these are standalone design units that do not have manufacturing facilities but team up with shipyards to form
consortiums that leverage each others competencies. Indian players need to work hard to meet the international players in ship
automation and technology. Indian yards lack the capability to build large and modern ships. Presently, the Cochin shipyard is the
only one that has the capability to build large and modern ships.

7. Conclusion
Based on analysis of the current status and international norms & standards, the gaps & issues in the Indian shipbuilding industry can
be summarized in the table 4
The analysis of various facets of the global and the Indian shipbuilding industry clearly shows that India needs to look at multiple
interventions including in the areas of Regulatory framework, Investment policies, Trade policies, Fiscal policies, Infrastructure,
R&D, Skill, Financing, Process, Collaboration and Technology.
Given that the share of Indian ships in the carriage of Indias overseas cargo has fallen sharply and Indian ships are ageing, there is
urgent need to replace our ageing ships with new ones. While the time is opportune for increasing our shipping fleet, with prices
falling on account of global slowdown, a special financing mechanism needs to be developed. This also brings to focus the importance
of Indias shipbuilding industry which has the capacity and expertise but is functioning below capacity. Many shipyards are facing
problems like declining orders. With the need to replace many of our old ships and a growing ship repairs business, special attention
can be given to utilizing Indias shipbuilding and repairs yards and further enhancing their capacity

S. No. Areas Gaps & Issues

High dependence of ship owners in old ships due to constraints of investment capacity to buy new ship.
Present requirement to obtain multiple clearances covering land acquisition, environmental clearance, power and
1. Scalability water etc., from various departments for new projects in shipbuilding acts as a deterrent to attracting investment
into this sector.
High interest rates on working capital in India as compared to competing countries (difference as high as 5-6% as
Cost compared to competing countries)
2. Efficiency Customs duty of the order of about 35% is imposed on all capital equipment required for shipbuilding.
Limited investment in R&D in ship designing and innovation.
Productivity Non-availability of organized component and service supply manufacturers.
3. Optimization Dependence on imports for critical raw- materials like high quality steel plates and other structural items.
Lack of basic skills like welding and fitting
Quality Inadequate skills and infrastructure availability for conducting research in the areas of ship designing, ship
4. Excellence building technology and equipment design etc
Inability of smaller suppliers to keep abreast with the rising quality issues.
Absence of a strong ancillary industry
Inverted duty structure. All ships including dredgers imported by Indian owners from abroad are fully exempted
5. Sustainability from customs duty. However, customs duty of the order of about 35% is imposed on all capital equipment
required for shipbuilding.
Lack of synergy between public and private yards.
Table 4: Gaps and issues in the Shipbuilding Industry

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8. Acknowledgment
The author would like to thank Ministry of Shipping for sanctioning the study on the Productivity in Indian Ship building Industry and
Director of Indian Maritime University, Visakhapatnam Campus and colleagues for their assistance and support for carrying out the
study.

9. References
i. Cdr .S. Navaneetha Krishnan, Prosperous Nation Building through Ship building, KW Publishers, India, 2011.
ii. Clarkson research services limited - Ship Type Orderbook Monitor, World shipyard Monitor, etc.
iii. KPMG analysis reports
iv. Report of working group for shipbuilding and ship repair industry for the eleventh five year plan (2007-2012), Government
of India, Ministry of shipping, Road Transport and Highways, March 2007.
v. Report on Statistics of Indian shipbuilding and ship repairing industry 2010-2011, Government of India, Ministry of
shipping, Road Transport and Highways, Feburary 2012.
vi. Report on Indian Shipping Industry: A Catalyst For Growth, Export-Import Bank of India, October 2010
vii. www.dsir.gov.in
viii. www.investingintamilnadu.com - Report on Indian shipbuilding industry FICCI

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