Japanese heavy machinery makers are seeing their fortunes sink in the shipbuilding sector amid tough competition from South Korean and Chinese competitors.
Decades ago, large tankers and cargo ships symbolized Japan’s remarkable economic strength. Now, the country’s struggling shipbuilders are looking for more profitable sectors.
Mitsubishi Heavy Industries plans to halve shipbuilding operations at Koyagi Shipyard, one of its main dockyards in Nagasaki in southern Japan. The facility has been producing tankers for liquefied natural gas and other commercial vessels, but plans to scale down shipbuilding facilities and shift to constructing more profitable bridges, jetties and other marine structures.
The company spun off some of its shipbuilding business in January into two wholly owned subsidiaries.
“It will only harm us to chase a small amount of fish, competing with South Korean rivals in an attempt to win cheap orders,” says Koji Okura, CEO of Mitsubishi Shipbuilding, one of the new subsidiaries.
LNG tankers are a case in point. Because they have to transport extremely cold substances at temperatures down to minus 162 C, these ships were highly valued when first introduced. But increased global demand for LNG has commercial shipbuilders scrambling to construct them. South Korean companies now dominate the market with their less expensive ships.
“We don’t intend to fully rely on orders from Mitsubishi Heavy group companies,” said Kunio Shiiba, CEO of the other new subsidiary, Mitsubishi Heavy Industries Marine Structure. The company is now seeking opportunities in other sectors, such as marine structures and energy facilities. It has already won an order from a major Japanese bridge developer to construct jetties.
Due to their ability to build different types of ships — from military vessels to large commercial carriers — heavy machinery makers have long led Japan’s shipbuilding sector.
But China’s rapid economic growth increased trade volume in the 2000s, resulting in a corresponding demand for large commercial carriers. This has prompted South Korean and Chinese shipbuilders to expand, using their inexpensive labor and large dockyards to significantly erode Japan’s market share.
This mirrors the global shakeout in the shipbuilding sector six decades ago, when Japanese companies supplanted their Scandinavian and British rivals. But the European builders managed to survive by diversifying into other businesses.
Japanese shipbuilders now face the same challenges.
“Odense Steel Shipyard is our model,” says Takao Tanaka, president of Mitsui E&S Holdings, referring to the Danish shipyard that was once the largest in Scandinavia. Overtaken by Asian rivals, Odense turned to the wind power business. Today, the company is one of the world’s top producers of offshore wind-power facilities.
Mitsui plans to reduce shipbuilding operations at its Chiba dockyard outside Tokyo, a location once renowned for producing ultralarge 300,000-ton tankers. The move will free up facilities to construct bridges and parts for undersea tunnels.
These products are mostly for domestic use, making them largely immune from fluctuations in currency rates and global markets. But competition for Japanese public projects may heat up as newcomers enter the domestic market.
Another factor behind heavy machinery companies leaving shipbuilding is a serious lack of engineers.
People 60 or older account for 12% of engineers at Japan’s shipyards, compared to 3% in 2007. Japanese shipbuilders are rehiring experienced engineers after they reach retirement age, this often being 60, as they rely on experienced senior staff to mentor younger employees.
But engineers over 60 cannot work forever. Mitsubishi Heavy’s Nagasaki plant expects its current workforce of 700 fall 10% over the next five years.
Meanwhile, Japan’s shipbuilding sector continues to shrink. On Thursday, it became known that a company spun off from Minaminippon Shipbuilding filed for bankruptcy. Debt-ridden Minaminippon jettisoned the company while being acquired by industry-leader Imabari Shipbuilding earlier this year.