Vietnam’s shipbuilding industry sets sail for growth and expansion-
Vietnam’s shipbuilding industry, ranked fifth in the world, is a priority sector in the country’s infrastructure development agenda. Over the years, the country has invested in increasing output capacity and the use of technology in this sector. The prospects of the sector are boosted by the country’s long coastline of over 3,000 km, low labour costs, and good potential for domestic waterway transportation.
In general, shipbuilding is a very lucrative industry for developing nations, as it can shore up the foreign currency reserves of the country by boosting the volume of trade. For instance, Japan and South Korea demonstrated the advantages of developing this sector back in the 1950s and 1960s, which resulted in increased trade and foreign investment.
Industry overview
Vietnam currently has over 120 shipyards involved in the construction of various types of ships. The capacity of the country’s shipbuilding fleet is about 6.5 deadweight tonnage (DWT). These shipyards serve 127 ports across the country. The key industry facilities are located at the southern, central, and northern shipbuilding clusters in the country. The Vung Tau area, 160 km south of Ho Chi Minh City, is an offshore shipbuilding cluster with a strong presence of Norwegian companies. Further north, Hai Phong is the main shipbuilding cluster for bulk carriers, while the central cluster focuses on the development of both tankers and bulk carriers.
Vietnam’s Shipbuilding Industry Corporation (SBIC), popularly known as Vinashin, is the largest government-owned shipbuilding company in Vietnam. Vinashin’s shipyard accounts for about 70 per cent of Vietnam’s domestic shipbuilding capacity. The company built over 225 vessels during 2010–13. Other companies include Vietnam National shipping Lines and VINAMARINE. The shipbuilding sector has also attracted investors from the European Union, Japan, and South Korea. Companies that have invested in the sector include MAN B&W Diesel, Hyundai Mipo Dockyard, Aalborg Industries, and Mitsubishi Heavy Industries.
Robust growth
Vietnam’s shipbuilding industry has grown by 25–30 per cent annually for the past decade in all segments, according to several news reports released in March 2014. Vietnam’s shipbuilding fleet capacity is now ranked 30th in the world and fourth in Southeast Asia. Over the past few years, Vietnamese shipbuilding companies that have strengthened their order books have outpaced their global counterparts in Europe, Japan, and China. Several European companies, such as the Netherlands-based Damen, are investing in Vietnamese shipping yards to derive benefits from economies of scale.
Although Vietnam’s shipbuilding industry is doing well in the global market, ship repair facilities in the country remain weak at the moment. Investment is needed in this segment to cater to rising maintenance demand from the country’s growing fleet.
Key structural weaknesses
Over the past several years, the monopolistic market structure of the country’s shipbuilding sector has been a major cause for concern. In Vietnam, the Vinashin Shipbuilding Group, with strong government backing, holds a commanding market share of 70–80 per cent. In 2009, the company opened up to foreign investment. In a key development, debt-ridden Vinashin completed its restructuring process in 2013. The 100 per cent state-owned entity has been set up through an investment of $452 million. It has eight subsidiaries, including the Pha Rung Shipyard, Bach Dang Shipyard, Ha Long Shipyard, Thinh Long Shipyard, and the Cam Ranh Shipyard. The restructuring will expedite the delivery of the previous company’s order backlog. SBIC’s current project portfolio comprises 15 projects, five of which have been secured in 2014.
However, due to an overleveraged portfolio and an inefficient production structure, the company ended up with a mounting debt burden, accompanied by interest rate pressure. Even after an expansive restructuring exercise, financial stability will continue to be a concern till the company’s portfolio is not completely deleveraged.
Moreover, Vietnamese shipyards are less labour efficient than those of other countries. However, as the average wage cost is far lower than in competing shipbuilding nations, Vietnam still enjoys a competitive edge.
Another problem is the country’s limited capacity for the local production of marine equipment. Imported equipment is expensive, cutting into the profit margins of domestic players.
Charting a well-defined course for foreign investment
According to industry estimates, maritime-related business in Vietnam will account for about 50 per cent of the value of the national economy by 2020. The Vietnamese government has formulated ambitious plans for the shipbuilding industry. These plans involve the optimum use of existing shipbuilding capacity and infrastructure, as well as the creation of new yards and repair facilities to connect major seaports and international maritime routes. Vietnam’s seaborne trade volume is expected to triple by 2020 – surpassing the 1,000 million tonne (mt) per year mark. This development will further boost the demand for the country’s shipbuilding industry.
In the years to come, Vietnam will offer a wide spectrum of opportunities to global players and consultants. Global shipyard operators can increase their competitiveness by reaping benefits from economies of scale by cooperating with SBIC. Global shipyard equipment suppliers can invest in cheaper production facilities in the country.
Going forward, stakeholders in Vietnam’s shipbuilding industry will continue to face competition from Japan and China. Therefore, charting out a well-defined framework to attract foreign investment will be critical.
