The various issues creating problems in the global shipbuilding market and in certain segments thereof (past over-ordering, the US economic slowdown, the uncertainties in the world economy and the effects of 11 September) have persisted throughout the year 2002. Order intake in 2002 was lower than in 2000 and 2001 and reached a total of 20.470.000 cgt (compared to 29.430.000 cgt in 2000 and 23.340.000 cgt in 2001, source: Lloyd's Register/OECD). Order intake therefore decreased by 12.3% for the period 2001 to 2002, following a decrease of 20.7% for the period 2000 to 2001.

　

Most affected by deteriorating market conditions are container ships and cruise ships (as visible in the next graph). Only one cruise ship order has been placed since 11 September 2001 and the cruise industry has clearly indicated that the period of market consolidation is expected to continue for the next two or three years, i.e. new orders for cruise ships will be limited and selective. For containerships some orders in the Post-Panamax segment have been recorded, but ordering activity is well below previous levels. The main container shipping operators stated losses or a significant drop in profits in 2002 and are trying to increase their fleet of larger vessels in order to lower unit costs in the mid-term future. With a great number of Post-Panamax container ships entering the market in the coming 24 months, further freight rate deterioration has to be expected in this market segment and investment has to be seen in the light of market consolidation, rather than market expansion. Given that interest rates are currently very low, some owners may be inclined to take the decision to invest in new ships now, earlier than they would normally do.

　

Demand for other ship types, such as LNG carriers, chemical carriers and crude oil carriers also declined, although to a lesser degree.

　

Only product tankers and bulk carriers have seen increased ordering, due to the replacement of old tonnage following new EU maritime safety regulations ("Erika" and "Prestige") and Japanese and Chinese domestic demand, respectively. In the case of bulk carriers demand has also been positively influenced by new design rules coming into force after 1 July 2003. These rules will require a strengthening of certain parts of the steel structure for ships contracted after that date, leading to an estimated increase of 5% in steel weight and thus higher building costs. However, these shiptypes are of low production value and competition for contracts in these segments is fierce, leading to continued price depression.

　

The following graph shows the development of ordering activities in the years 2000- 2002 for the major ship types (source: Lloyd's Register/OECD/graph adapted by Commission services).

　

　

These developments affect the world's main shipbuilding regions differently. While Japanese yards continue to benefit from strong domestic demand for bulk carriers since these orders are almost entirely placed in Japan (in keeping with traditional ordering patterns, but also based on the fact that Japanese yards have optimised the series production of this ship type), South Korea is battling with China for tanker contracts, mainly for European owners. As this competition is almost entirely based on price, substantial profits from these orders are not to be expected as evidenced in the detailed cost investigations. EU shipyards are no longer active in these low-value market segments. This results in a decreasing output volume for EU yards, clearly visible from the market share development given below, which is expected to continue and a number of job losses and yard closures in all major European shipbuilding nations have occurred. The main hopeful segments for EU shipbuilders are the ferry sector⁵ (mainly covering the category of Passenger/Ro-Ro vessels) and small tankers⁶, where replacement needs are building up. However, these developments have yet to materialise and may come too late for many yards running out of work already in 2003 and 2004. In addition, it can be assumed that Korean shipbuilders will try to get a foothold in these market segments through very low offer prices.

　

　

All developments described above have to be seen in the light of a significant production over-capacity in the shipbuilding sector, estimated to be at least 20% above the levels required for the necessary replacement of old tonnage and the accommodation of eventual additional demand stemming from increased sea-borne trade⁷. This over-capacity continues to grow with new yard investments being undertaken in particular in China and now also Vietnam. At the same time Korean yards continue to expand existing production capacities, mainly through increased sub-contracting of shipbuilding work contents, including steelworks. This should have a continued negative effect on prices.

　

　

Ship prices at the end of 2002 were generally lower than at the end of 2001. According to Clarkson Research Studies, a leading source for price information, the following trends were observed.

　

[The shiptypes appear as listed by Clarkson.]

　

[For container ships the container carrying capacity in TEU (Twenty-Foot- Equivalent-Unit) is indicated, with ships above 5000 TEU falling into the category of the so-called Post-Panamax container ships.]

　

[LNG carrier stands for Liquefied Natural Gas carrier, LPG carrier for Liquefied Petroleum Gas carrier.]

　

[VLCC stands for Very Large Crude oil Carrier.]

　

[Ro-Ro indicates a roll-on/roll-off cargo ship.]

　

[The terms Aframax, Suezmax, Panamax, Capesize, Handymax and Handysize indicate certain standard dimensions and specifications for tankers and bulk carriers, respectively.]

　

　

　

It is noteworthy that the declining value of the US Dollar vis-à-vis the Euro, Won and Yen should have led to a price increase (in USD) across the board. As this did not happen, it has to be concluded that overall ship prices have dropped further. The following graph shows the movements of the Won against the US Dollar for the period II/1999-2002. The notable strengthening of the Won in 2002 and in particular in the last quarter of 2002 should have forced Korean producers to ask higher US Dollar prices, but this was not the case.

　

　

The ship price index maintained by the Commission reflects the price developments (see graph). It shows that the modest price recovery in 2000 and 2001, when ordering was strong, was not sustained and price levels are the lowest for more than a decade.