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Around 80% of the global trade and 95% of Indian trade by volume rests on maritime shipping. However, in every era throughout history only a few nations have been able to develop a shipbuilding industry to support the global trade. In addition to being a major contributor to national employment and industrial development, the shipbuilding industry has served as an important source of export and foreign currencies. From ancient India to the Romans, and from Britain to the USA the one pattern among all these shipbuilding leaders is that they were – or still are – major economic hubs in their time. But in the modern world economy which is far more intricately connected than ever, ~90% of the shipbuilding is concentrated in only three countries, namely China, South Korea and Japan; this creates a massive bottleneck in the very foundation of the global supply chain.
The US rose to prominence during the Second World War, when the war-fuelled US economy produced 90% of the world’s ships with an astounding average production rate of 3 ships per day. This production boom created a tremendous oversupply of cargo ships after the war. Many of the American shipyards cut back on the production and closed down in the subsequent years. This resulted in the US losing most of its market share in shipbuilding sector. Meanwhile, on the other side of the Pacific, Japan – under the US influence – made its already established shipbuilding industry, the foundation of its recovering post-war economy. By the 1960s, it was creating over 40% of the world’s ships, surpassing the UK, the market leader at the time. Around the same time, South Korea was entering the shipbuilding market as a prominent player. The extensive government-backed subsidies to the chaebols (family-owned conglomerates) propelled the country to the forefront. In the 90s, China came to the market with a huge investment in shipbuilding, state-backed shipyards like China State Shipbuilding Corporation (CSSC) and most important of all, a robust domestic supply of raw materials which both of its competitors lacked. This, combined with China’s large skilled workforce, meant that it was in a perfect position to be a market leader in this sector. Unsurprisingly, today China holds an overwhelming dominance with 73% market share, followed by South Korea which produces 12% of the ships and Japan which holds onto a humble 9% after losing most of the market share to China.
However, these countries have various other factors working behind their success. As the technology and economy get complex day-by-day, factors other than workforce are gaining more importance. A capital investment into mechanised precision steel cutting and welding tools not only brought these countries up to industrial standards but also significantly decreased the construction time. Another factor is the short supply chain encouraging independence and reducing overall costs in these countries like globally competitive steel mills – especially in South Korea and Japan where it makes up for the lack of iron ore or coal. Nowadays, shipbuilders offer refund and corporate securities to their clients; and these require either a strong balance sheet, a liberal bank loan system or state support. A stable currency and a robust economy help the shipbuilders to incentivise their clients. A resilient currency also ensures that the system is protected from inflation which would prove detrimental to the shipbuilding contracts.
Nowadays, many of the major shipyards follow a varying mix of operating philosophies. Although most of them follow the strategy of mass production and diversification into different kinds of ships, some of them specialise their operations to dominate a niche, like the Korean shipyards specialise in high-end LNG carriers accounting for over 65% of the global LNG carrier orders with a clear technical edge over China and Japan. Having a state-owned status also gives the shipyard a benefit of having a strong shareholder.
Nevertheless, these operational philosophies face the challenges of ever-increasing geopolitical volatility. The trade agreements and tariffs directly affect major components such as engines or iron ore. The shift towards a greener industry has also resulted in stricter environmental rules which demand new fuels, technological development and retrofitting old ships. This all comes to a head due to the very limited number of shipyards as compared to global demand, pushing the order-book to an average of three to four years.
Although, many countries are trying to reduce their dependence on China by investing in their own shipyards, the substantial amount of infrastructure and financial system to support it is a huge challenge in that path. It remains to be seen how the shipbuilding industry transitions in the years ahead.

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