Analysis of the economic operation of the shipbuilding industry in 2022

In 2022, the overall economic operation of China's shipbuilding industry is stable and improving. Under the cordial care of the Party Central Committee and the State Council, and with the efforts and hard work of all shipbuilders, China's shipbuilding industry has calmly responded to the changes of the century and the challenges of the century's epidemic situation, adhering to the theme of promoting high-quality development, and deeply promoting the implementation of the "14th Five Year Plan". The shipbuilding market share has remained globally leading, new breakthroughs have been made in high-end equipment, the toughness and safety level of the industrial chain supply chain have been improved, and significant results have been achieved in destocking marine engineering equipment, The quality of economic operation has significantly improved, but short-term problems overlap with medium - and long-term problems, and the future development situation remains grim.

1、 Basic situation of economic operation

（1） Three major shipbuilding indicators: one increase and two decreases

In 2022, the national shipbuilding completed 37.86 million deadweight tons, a year-on-year decrease of 4.6%. The number of new orders received was 45.52 million dwt, a year-on-year decrease of 32.1%. As of the end of December, the number of handheld orders reached 105.57 million dwt, an increase of 10.2% year-on-year.

The export ships completed nationwide reached 30.67 million deadweight tons, a year-on-year decrease of 14.6%; New orders for export ships reached 40.56 million dwt, a year-on-year decrease of 31.7%; By the end of December, orders for hand-held export ships had reached 95.22 million deadweight tons, a year-on-year increase of 12.6%. Export ships accounted for 81.0%, 89.1%, and 90.2% of the country's shipbuilding completion, new orders, and handheld orders, respectively.

（2） The amount of ship exports keeps growing

From January to November 2022, China's ship exports amounted to 23.85 billion US dollars, a year-on-year increase of 7.9%. Bulk carriers, oil tankers, and container ships still dominate the export of ship products, with a total export value of 12.38 billion US dollars, accounting for 51.9% of the total export value. China's ship products have been exported to 191 countries and regions, with ship exports to Asia, Europe, and Latin America amounting to 12.28 billion, 4.05 billion, and 2.06 billion US dollars, respectively.

（3） Growth in main business income and profit

From January to November 2022, there were 1093 shipbuilding industry enterprises above designated size nationwide, with a main business income of 457.29 billion yuan, an increase of 8.0% year-on-year. Shipbuilding industry enterprises above designated size achieved a total profit of 13.65 billion yuan, a year-on-year increase of 70.0%.

2、 Main highlights of economic operation

（1） The international market share continues to lead, and the competitiveness of key enterprises increases

In 2022, China's shipbuilding international market share has ranked first in the world for 13 consecutive years, and its position as a shipbuilding power has further stabilized. China's shipbuilding completion, new orders received, and hand orders accounted for 47.3%, 55.2%, and 49.0% of the world's total in terms of deadweight tons, respectively, an increase of 0.1, 1.4, and 1.4 percentage points compared to 2021, and accounted for 43.5%, 49.8%, and 42.8% in terms of revised gross tons, also maintaining a global lead. China's key shipbuilding enterprises maintain strong international competitiveness, with 6 enterprises entering the top 10 in the world in terms of shipbuilding completion, new orders received, and handheld orders.

（2） New breakthroughs in high-end equipment and rapid growth of green powered ships

In 2022, Chinese shipbuilding enterprises continued to increase their research and development efforts, making new breakthroughs in the field of high-tech ships and marine engineering equipment. High-end ship types such as 24000 TEU container ships and 174000 cubic meters of large LNG have achieved batch delivery. The first domestic large-scale cruise ship has achieved a significant milestone in the main power generation of motor vehicles, and the construction of the second large-scale cruise ship has been successfully commenced. The delivery of marine engineering equipment such as 100000 ton intelligent fishery large-scale aquaculture craft, the fourth generation self elevating wind power installation vessel, and cylindrical FPSO (Floating Production Storage and Unloading Device) was achieved. The completion and delivery of green power (601330) ships such as 300000 ton LNG dual fuel powered VLCC, 209000 ton Newcastle LNG dual fuel powered bulk carrier, 49900 ton methanol dual fuel powered chemical/product oil tanker, etc. The proportion of green powered ships in new orders received throughout the year reached 49.1%, a record high.

（3） Accelerated application of domestic supporting products and enhanced industrial chain security

In 2022, the loading rate of domestic marine main engines, marine boilers, marine cranes, marine gas supply systems (FGSS) and other supporting equipment continued to increase. Dalian Huarui's 1000th marine crankshaft was delivered offline, and the world's first dual fuel main engine with intelligent control exhaust gas recirculation system was completed and delivered. The development capacity of high-end steel for ships has been continuously improved. All crack arrest plates for large containers and ships have been replaced domestically. The localization rate of duplex stainless steel for chemical ships has increased from less than 50% to more than 90%. The domestic high manganese steel tank project has been successfully started. The special stainless steel for domestic membrane type LNG ships and tanks has passed the certification of a patent company, and the development of automatic welding equipment for corrugated plates on domestic LNG ships has been successful. The security level of the industrial chain supply chain has significantly improved.

（4） The demand for offshore oil and gas equipment has expanded, and the effect of "de inventory" has been obvious

In 2022, the international oil price fluctuated at a high level, and the spot price of Brent International crude oil once climbed to 139 US dollars per barrel, hitting a new high since the financial crisis, driving the expansion of the global offshore oil and gas equipment market demand. Domestic offshore engineering equipment companies seized the opportunity and achieved positive results in "destocking". Among them, China Shipping Group delivered 2 jack-up drilling platforms and 6 offshore engineering auxiliary ships; China Merchants Industrial Group delivered 2 drilling platforms, 3 multi-functional service platforms, and 1 other equipment; COSCO Shipping Heavy Industry Co., Ltd. delivered 2 offshore engineering auxiliary ships; Yantai CIMC Raffles Offshore Engineering Company has obtained leases for one semi submersible drilling platform and one jack-up drilling platform.

（5） Seize favorable market opportunities and improve industry benefits

In 2022, the market environmental factors of the shipbuilding industry generally showed favorable changes. The Clarkson New Ship Price Composite Index was 162 points, rising 4.5% throughout the year, with the average price increase of over 10% for new ships such as large container ships, 7000 car space motor carriers, and 174000 cubic meters of large LNG ships. The price of 6mm and 20mm steel plates for ships has been reduced by more than 1000 yuan/ton compared to the beginning of the year; The central parity rate of the RMB against the US dollar depreciated by 9.23%. At the same time, shipbuilding enterprises have reduced costs and increased efficiency by strengthening planning and management of major shipbuilding nodes, implementing intelligent transformation of production lines, and strengthening cost management. From January to November, the benefits of shipbuilding enterprises significantly improved, with the main revenue margin rebounding to 3.0%.

（6） Significant results in structural adjustment and continuous improvement in the quality of new ship orders

In 2022, China's shipping enterprises consolidated their leading position in the advantageous ship type market and consolidated the foundation of new ship orders. Among the 18 major ship types in the world, China had 12 new orders for ship types, ranking first in the world. Among them, new orders for bulk cargo ships, container ships, motor transport ships, and crude oil ships accounted for 74.3%, 56.8%, 88.7%, and 66.1% of the global total, respectively. In particular, significant breakthroughs have been made in the field of large LNG ships, with the international market share of new orders for large LNG ships exceeding 30% for the first time throughout the year. The structure of new ship orders was optimized and improved throughout the year, with the repair load ratio (corrected gross tons/deadweight tons) reaching 0.468, the highest level in history.

3、 Challenges and main issues

（1） Outstanding contradiction between full production tasks and insufficient labor force

In 2022, China's ship holding orders exceeded 100 million deadweight tons again after six years, with the average production guarantee coefficient (holding orders/average completion in the past three years) of about 2.7 years for shipping enterprises. Some enterprises have already scheduled their delivery dates to 2026. Currently, the production tasks of shipbuilding enterprises are full, especially with the rapid growth of high-tech ship orders, there is a greater demand for skilled labor. In recent years, due to the impact of the COVID-19, there has been a large loss of migrant workers from ship enterprises. Recently, the number of infected people has increased, and the rate of personnel on duty has significantly declined, which has exacerbated the shortage of labor. The contradiction between full production tasks and insufficient labor supply in shipbuilding enterprises has further expanded, and the stability of the labor force has become even more prominent.

（2） Stability of the ship supporting supply chain still faces challenges

In the past two years, with the significant growth of new ship orders, the demand for ship supporting equipment has significantly increased. However, it is difficult for ship fitting enterprises to rapidly increase their production capacity in a short period of time, and product prices have risen and supply delays are common. In addition, affected by the COVID-19, the production cycle of supporting equipment, logistics costs and transportation cycle have generally increased. The supply of some imported supporting equipment is becoming increasingly tight. The average arrival period of ship communication, navigation, automatic control systems, electronic and electrical equipment, etc., is extended by 1-3 months compared to the normal state. The average arrival period of ship engine chips, crankshafts, piston rings, and control systems is extended by more than 3-6 months compared to the normal state.

（3） Gradually increasing risk of ship market adjustment

In 2022, the global economy entered a period of high inflation and low growth, with the economic growth rate slowing by nearly half compared to the previous year. Consumer demand and the development of maritime trade were both impacted. Most notably, in 2022, there was a significant adjustment in the container transportation market, with container ship freight prices falling for eight consecutive months, dropping to $27600 per day by the end of the year, a decrease of 68.4% from the year's high. Since the second half of the year, the composite index of new ship prices has experienced a "stagflation", maintaining a level of 162 points for six consecutive months, with individual ship types experiencing a slight decline in prices. The risk of short-term adjustment of the international shipping and shipbuilding markets due to macroeconomic changes is gradually increasing.

4、 Forecast

In 2023, according to estimates by institutions such as the International Monetary Fund (IMF), the world economy will face greater downward pressure, economic growth will continue to be low, and demand contraction will inevitably have a negative impact on the international shipping and shipbuilding markets. Based on comprehensive analysis, it is expected that the global shipbuilding completion volume in 2023 will maintain a historical high of 100 million dwt, with new orders received below 100 million dwt, and handheld orders maintained at over 200 million dwt; China's shipbuilding completion will exceed 42 million dwt, with orders for new ships of about 40-50 million dwt, and orders for hand-held ships remaining at around 100 million dwt.

5、 Recommendations

（1） Keep the word steady and make every effort to ensure the delivery of the ship and implement safety measures

In the next 3-4 years, China's shipping enterprises will usher in a peak period of ship delivery, with the proportion of high-tech ships significantly increasing. 2023-2024 is the centralized delivery period for large container ships. According to the plan, China will deliver 44 large container ships of 15000TEU and above, accounting for over 20% of the shipbuilding completion in that year. The period from 2025 to 2026 is the centralized delivery period for large LNG ships, with many enterprises building large LNG ships for the first time. It is recommended that shipping enterprises comprehensively strengthen production planning and material supporting management, adhere to quality first and safety first, and ensure the timely delivery of hand-held order ships. Fully implement the main responsibility of enterprise safety production, strengthen the entire process safety production management, ensure the orderly progress of production, and ensure the life safety of employees.

（2） Improve quality and efficiency, grasp the rhythm to improve order quality

In the past two years, the global new shipbuilding market has remained active, and the market demand for different ship types has shown a dynamic development. The prices of new ships such as large container ships, automobile carriers, and large LNG ships have increased significantly, with the price difference of the same type of ships reaching tens of millions of dollars within a year. It is recommended that shipping enterprises strengthen the dynamic tracking of the development of the international shipping and shipbuilding market, avoid blindly following the trend, combine their own hand-held ship orders and ship location arrangements, optimize their business strategies, grasp the order receiving rhythm, and further improve the quality of new orders while ensuring the continuity of enterprise production.

（3） Prevent risks, strengthen research and judgment, and take countermeasures

Currently, the external environment facing the shipbuilding industry is becoming more complex and uncertain. Since the fourth quarter of 2022, the exchange rate of the RMB against the US dollar has continued to appreciate, breaking the 6.8 threshold; The price of imported iron ore reached 116 US dollars per ton, up 43.2% from the low point in 2022; The fluctuation range of new ship prices has increased, and the composite index of new ship prices has experienced "stagflation", while the prices of individual ship types have decreased. It is recommended that shipping companies strengthen market research and judgment, adhere to the concept of risk neutrality, strengthen upstream and downstream cooperation in the industrial chain, and control risks such as raw material costs and exchange rate changes by signing long-term procurement agreements with steel companies and long-term exchange settlement agreements with financial institutions. In addition, new rules such as the International Maritime Organization (IMO)'s existing Ship Energy Efficiency Index (EEXI) and Ship Operating Carbon Intensity Index (CII) ratings have taken effect, and the revised IMO Ship Greenhouse Gas Reduction Strategy will be adopted in July 2023. It is recommended that relevant ship enterprises and research institutions pay high attention and study and take countermeasures as soon as possible.

（4） Explore and innovate to resolve the contradiction of insufficient human resources

At present, the contradiction between rapid production growth and insufficient labor supply in China's shipping enterprises is increasingly prominent, which has become an important factor restricting the high-quality development of the industry. It is recommended that the relevant government departments attach great importance to it, organize in-depth research, and increase policy support for the recruitment of employees of shipping enterprises, professional job training, etc. It is recommended to research and innovate the training mechanism for professional and technical personnel and skilled workers in shipbuilding and marine engineering equipment in key areas in combination with vocational education reform. It is recommended that key shipbuilding enterprises reform the existing employment model, explore measures such as moderately increasing the number of employees, improving worker pay, and improving the working environment, to maintain the stability of the workforce and improve technical level. At the same time, it is recommended that shipping enterprises steadily promote the application of intelligent manufacturing technology, improve production efficiency, and alleviate the labor shortage problem based on the existing foundation and conditions.