Seventh Report from the Commission to the Council on the Situation in World shipbuilding
Date: 2003-05-06
Institutions: European Commission
Subjects: economic statistics, industrial statistics, international competition, international market, market supervision, shipbuilding

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 6.5.2003
COM(2003) 232 final

SEVENTH REPORT FROM THE COMMISSION
TO THE COUNCIL

ON THE SITUATION IN WORLD SHIPBUILDING

   
TABLE OF CONTENTS

1.

2.

Introduction.................................................................................................................. 3

Market analysis ............................................................................................................ 4

2.1.1. Ordering activity and market shares ............................................................................ 4

2.1.2.

Price developments ...................................................................................................... 6

3.

Cost investigations ....................................................................................................... 9

3.1.1. Update of previous cost investigations ........................................................................ 9

3.1.2. New cost investigations ............................................................................................. 12

4.

Conclusions................................................................................................................ 14

2

1.

INTRODUCTION

This  seventh  report  from  the  Commission  to  the  Council  on  the  situation  in  world
shipbuilding,  covering  market  developments  in  2002,  follows  the  Commission’s
obligation to report on the situation in the world shipbuilding market,  laid  down in
Article 12 of Council Regulation (EC) No. 1540/981 and is in line with the previous
six reports2.

The  Council  decided  on  27  June  2002  that  the  Commission  should  make  a  final
effort  to  solve  the  problems  stemming  from  certain  business  practices  by  Korean
yards  and  achieve  an  amicable  agreement  with  South  Korea.  As  stated  in  the
Commission’s sixth report, no agreement with Korea could be reached.

In the absence of a negotiated solution, the Commission has initiated WTO action on
21 October 2002 and is now proceeding along this path. In addition and in line with
the  Council  decision  of  27  June  2002  a  Temporary  Defensive  Mechanism  to
shipbuilding3  has  entered  into  force  on  2  July  2002.  It  authorises  direct  aid  to
shipyards of up to 6% for certain ship types4 and is applicable to contracts signed as
of 24 October 2002.

On OECD level, negotiations for a new shipbuilding agreement started in December
2002. At this point in time it is, however, too early to predict the outcome of these
negotiations which will continue until 2005 at the latest.

In  response  to  an  earlier  Council  request,  expressed  in  the  Council  conclusions  of
May  2001,  the  EU  shipbuilding  industry  has,  together  with  the  Commission,
launched the LeaderSHIP 2015 initiative which is designed to develop new working
structures  and  technology  priorities  and  so  sustain  the  Community’s  shipbuilding
industry, in particular by establishing a level playing field world-wide and regionally.
It brings together all major industry players, trade unions and key EU policy makers
from  the  Commission  and  the  Parliament.  LeaderSHIP  2015  will  look  into  all
pertinent  shipbuilding  issues,  from  world  trade  to  skill  challenges  to  joint  naval
development  and  procurement.  The  initiative  has  already  developed  ideas  for
possible  lines  of  action  to  safeguard  the  future  competitiveness  of  European
shipbuilding  as  a  pro-active  response  to  the  situation  in  world  shipbuilding.  The
results of this work will be presented to the Council in the course of this year.

In addition to summarising the market developments in 2002 this report provides an
update  of  the  previously  undertaken  cost  investigations  and  adds  some  new  cost
investigations made since the presentation of the sixth report.

1

2

3

4

OJ L 202, 18.07.1998, p.1
COM(1999)  474  final;  COM(2000)  263  final;  COM(2000)  730  final;  COM(2001)  219  final;
COM(2002) 205 final; COM(2002) 622 final
Council Regulation EC No. 1177/2002
These  ship  types  are  container  ships,  product/chemical  tankers  and  LNG  carriers.  The  latter  type  is
subject to confirmation by the Commission that, on the basis of investigations covering  the  period  of
2002, the Community industry has suffered material injury and serious prejudice in this market segment
caused by unfair Korean practices.

3

                                                
As with previous reports, certain underlying key elements, e.g. concerning scope and
methodology  of  the  market  monitoring  undertaken  by  the  Commission,  are  not
repeated  here.  Those  elements  are  covered  in  the  previous  reports  and  are  listed  in
the introduction to the fifth shipbuilding report.

2.

MARKET ANALYSIS

2.1.1. Ordering activity and market shares

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).

4

Development of new orders by major ship types, 2000 – 2002

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.

5

6

Resulting  from  recently  adopted  EU  legislation,  regarding  specific  stability  requirements  for  Ro-Ro
ships and safety rules and standards for passenger ships.
Following  new  EU  maritime  safety  legislation  adopted  or  proposed  after  the  “Erika”  and  “Prestige”
accidents.

5

                                                
The market shares developed as follows (based on cgt):

South Korea

EU

Japan

China

2000

2001

2002

36 %

19 %

26 %

7 %

30 %

13 %

33 %

11 %

28 %

7 %

37 %

13 %

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.

2.1.2.

Price developments

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].

7

KSA,  the  Korean  Shipbuilders’  Association,  expects  the  excess  capacity  in  2005  to  be  16.1%,  while
AWES,  the  Association  of  European  Shipbuilders  and  Shiprepairers,  expects  it  to  be  29.3%  (Source:
OECD).

6

                                                
Price developments 2001 – 2002 by major ship types

Price end 2001
(Mio. USD)

Price end 2002
(Mio. USD)

Change

Shiptype

VLCC tanker

Suezmax tanker

Aframax tanker

Panamax tanker

Handysize tanker

Capesize bulk carrier

Panamax bulk carrier

70.00

46.50

36.00

32.00

26.25

36.00

20.50

Handymax bulk carrier

18.50

Handysize bulk carrier

14.50

LNG carrier

LPG carrier

165.00

60.00

725 TEU container ship

13.00

1000 TEU container ship

15.50

1700 TEU container ship

21.50

2000 TEU container ship

28.00

2750 TEU container ship

31.00

4600 TEU container ship

52.00

6200 TEU container ship

72.00

Ro/Ro ship (small)

Ro/Ro ship (large)

27.50

39.50

63.50

43.75

34.75

31.25

27.00

36.25

21.50

19.00

15.00

150.00

58.00

13.00

15.50

21.00

27.00

29.50

45.00

60.00

27.50

39.50

-9,29%

-5,91%

-3,47%

-2,34%

+2,86%

+0,69%

+4,88%

+2,70%

+3,45%

-9,09%

-3,33%

0,00%

0,00%

-2,33%

-3,57%

-4,84%

-13,46%

-16,67%

0,00%

0,00%

From this table certain conclusions can be derived:

(cid:1)  Prices have been stable in those segments where EU yards are strong and Korean
yards are not particularly active, namely small container ships and Ro/Ro vessels.

(cid:1)  Prices have marginally increased (plus 2.9%) in the segment of small tankers due
to  strong  demand  for  replacement  of  older  vessels,  following  new  EU  maritime
safety  legislation  (or  the  anticipation  thereof).  However,  in  the  light  of
significantly increased production costs in Korea and China (the countries where
most of these orders are currently placed) and the strong demand in this segment,
this price increase is very modest.

7

(cid:1)  Prices  have  increased  for  all  types  of  bulk  carriers  following  strong  domestic
demand in Japan and China and stricter design rules for this ship type coming into
force on 1 July 2003. As most orders are in Japan, the price discipline imposed by
the  Japanese  Government  appears  to  be  working  and  Chinese  yards  stick  to  the
price level pursued by the Japanese price leaders.

(cid:1)  Prices have again significantly deteriorated in those segments where Korean yards
see  their  main  business  (gas  tankers  and  large  container  ships)  and  where  they
compete  directly  with  each  other.  This  confirms  the  Commission’s  earlier
conclusion that fierce competition in South Korea has a detrimental effect on the
world  market  and  that  prices  seem  to  be  set  by  the  major  Korean  yards  without
always respecting actual production costs.

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.

Exchange rate development Won per US Dollar

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.

8

200

180

160

140

120

100

80

19881989 1990 19911992 1993 19941995 199619971998 1999 20002001 2002

Year

Price index for ship newbuildings (1987 = 100)

3.

Cost investigations

3.1.1. Update of previous cost investigations

In  line  with  previous  reports,  this  report  contains  an  update  of  all  previous  cost
investigations undertaken by the Commission within its market monitoring exercise.
The  methodology  of  these  cost  investigations  has  been  described  in  the  first  two
shipbuilding reports and is not repeated here. The approach is continuously refined

As shipbuilding projects take significant time to be completed, and actual costs may
change  until  delivery  of  the  vessel,  the  cost  investigations  have  to  be  based  on
forward  assumptions.  These  assumptions  are  continuously  reviewed  and  results  are
updated whenever new or better information is received. This is reflected in the table
below.  The  reference  to  the  shipbuilding  report  in  which  the  particular  order  is
covered  should  be  used  to  see  the  details  of  the  order  investigated.  As  the
Commission’s market monitoring progresses, ship orders previously investigated and
now completed can serve to verify the cost modelling. So far, updated figures are in
line with the original findings.

The abbreviations used refer to the following Korean shipyards:

DHI: Daewoo Heavy Industries

DSME: Daewoo Shipbuilding and Marine Engineering

HHI: Hyundai Heavy Industries

HMD: Hyundai Mipo Dockyard

HHIC: Hanjin Heavy Industries and Construction

SHI: Samsung Heavy Industries

9

Comparison of reported order prices and calculated construction prices for selected
new shipbuilding contracts (update December 2002)

CONTRACT
PRICE
(MIO.
USD)

NORMAL
PRICE
(MIO.
USD)

LOSS/GAIN
AS % OF
NORMAL
PRICE

REF. TO SHIP-
BUILDING
REPORT NO.

SHIPYARD

SHIPTYPE

OWNER

Daedong

Product tanker

Seaarland

Daedong

Panamax bulk
carrier

Sanama

Daedong

Chemical tanker Cogema

Daedong

2500 TEU

EF Shipping

Product tanker

Target Marine

21,5

18,5

24,5

30,0

25,5

25,7

26,0

30,2

31,2

28,7

–16 %

– 29 %

–19 %

–4 %

–11 %

STX (ex-
Daedong)

STX (ex-
Daedong)

STX (ex-
Daedong)

DHI

DHI

DHI

DHI

DHI

DSME
(ex-DHI)

Halla

Halla

Halla

Samho
(ex-Halla)

Samho
(ex-Halla)

Samho
(ex-Halla)

Product tanker

Byzantine
Marine

29,5

36,0

–18 %

LPG carrier

Qatar Shipping

30,0

40,1

–25 %

VLCC

Ferry

Panamax bulk
carrier

Anangel

Moby

Chandris

68,5

74,3

22,5

74,2

88,4

22,8

–8 %

–16 %

–1 %

LNG carrier

Bergesen

151,1

164,2

–8 %

ULCC

Hellespont

85,0

93,7

–9 %

LNG carrier

Exmar

162,0

169,2

–4 %

Panamax bulk
carrier

Diana

18,9

31,1

–39 %

3500 TEU

Detjen

Capesize bulk
carrier

Cargocean

Aframax oil
tanker

Chartworld
Shipping

38,0

32,0

53,0

46,2

–28 %

–31 %

33,5

41,5

–19 %

VLCC

Oldendorff

69,5

90,9

–14 %

Suezmax oil
tanker

Thenmaris

43,0

55,4

–19 %

10

1

1

2

4

6

6

6

1

2

2

3

4

5

1

1

2

4

5

5

HHI

HHI

HHI

HHI

HHI

HHI

HHI

HHI

HHI

HHI

HHI

HMD

HMD

HMD

HHIC

HHIC

HHIC

SHI

SHI

SHI

SHI

SHI

SHI

Samho (ex-
Halla)

Capesize bulk
carrier

Marmaras

36,0

53,6

–33 %

6800 TEU

P&O Nedlloyd

5600 TEU

K Line

73,5

54,3

81,6

59,1

–10 %

–8 %

LNG carrier

Bonny Gas

165,0

176,8

–7 %

5500 TEU

Yang Ming

Ferry

Suezmax oil
tanker

Stena

Jebsen

7200 TEU

Hapag-Lloyd

Suezmax oil
tanker

Athenian Sea
Carriers

56,0

70,0

43,0

72,0

43,0

63,7

88,2

51,2

79,5

49,9

–13 %

–21 %

–16 %

–9 %

–14 %

LNG carrier

Golar

162,6

178,4

–9 %

Capesize bulk
carrier

Golden Union

36,0

45,2

–20 %

2500 TEU

P&O Nedlloyd

27,5

32,7

–16 %

Cable layer

Ozone

Chemical tanker Bottiglieri

37,3

24,5

46,8

26,3

–20 %

–7 %

Product tanker

Schoeller

26,0

27,1

–4 %

Il Heung

Chemical tanker Naviera Quimica

10,5

6250 TEU

Niederelbe

5608 TEU

Conti

1200 TEU

Rickmers

62,0

58,0

19,5

5500 TEU

Nordcapital

3400 TEU

CP Offen

Ferry

Minoan

7400 TEU

OOCL

55,0

36,0

69,5

79,7

5762 TEU

CP Offen

55,0

Shina

Product tanker

Fratelli D'Amato

21,7

11

66,2

61,0

21,3

13,0

68,0

52,4

87,9

91,5

–6 %

–5 %

–8 %

–19 %

–19 %

–31 %

–21 %

–13 %

66,7

24,1

–18 %

–10 %

LNG carrier

British Gas

162,5

176,5

–8 %

6

1

2

2

2

4

4

3

3

5

6

6

1

4

6

3

3

3

2

2

1

1

4

5

5

3

3.1.2. New cost investigations

Since  the  sixth  shipbuilding  report  five  new  cost  investigations  have  been
undertaken.

These concern the following orders placed in South Korean yards:

– 

– 

– 

– 

– 

5  100  TEU  container  ship  (series  of  6),  40  776  cgt,  to  be  built  by  Daewoo
Shipbuilding and Marine Engineering

4 900 TEU container ship (series of 4), 34 775 cgt, to be built by Hanjin Heavy
Industries and Construction

Product/chemical  tanker  (series  of  4),  24 480  cgt,  to  be  built  by  STX
Shipbuilding Co. (ex-Daedong)

Capesize bulk carrier, 26 250 cgt, to be built by Hyundai Heavy Industries

Product tanker (series of 4), 23 200 cgt, to be built by Hyundai Mipo Dockyard

The results of these cost investigations are summarised below.

Comparison of reported order prices and calculated construction prices for selected new
ships (new investigations)

SHIPYARD

SHIPTYPE

OWNER

CONTRACT
PRICE
(MIO. USD)

NORMAL
PRICE
(MIO. USD)

LOSS/GAIN AS %
OF NORMAL PRICE

DSME

5100 TEU

Hamburg Süd

HHIC

STX

HHI

4900 TEU

MSC

Safmarine Corp.

Product /
chemical
tanker

Capesize bulk
carrier

Transmed
Shipping

HMD

Product tanker Athenian Sea

Carriers

58.0

45.0

27.0

36.0

27.8

64.5

48.3

37.0

46.4

36.1

-10%

-7%

-27%

-22%

-23%

These results confirm the findings  from  previous reports. Korean  yards continue to
sell ships at prices that appear to be below normal price (full costs of production plus
a profit margin of 5%). Typically prices seem to be set at a level that covers direct
operating costs but which does not include provisions for inflation and all financial
costs.  As  prices  for  ships  from  Korean  yards  have  stayed  at  historical  lows  in  the
reporting period, while costs of production have increased, the gap between contract
price  and  normal  price  is  widening  further.  For  the  latest  investigations  this  gap  is
20% on average (not weighted), while it was 8% for those in the fifth report issued a
year ago.

12

Korean yards, with their enormous production capacities, are particularly affected by
any  market  downturn  as  they  need  to  fill  their  large  building  docks  and  assure
enough cash flow to roll over their short terms debts. As a result indications are that
Korean yards are trying to get hold of almost any order that appears in the market, no
matter whether those orders will be profitable in the light of Korean costs or not. It is
noteworthy  that  Korean  yards’  orderbooks  are  increasingly  dominated  by  tankers,
despite the announcement made in March 2001 by the executive vice president and
chief marketing officer of Hyundai Heavy's shipbuilding division who said that HHI
“planned  to  focus  on  boosting  profit  margins  by  being  more  selective  in  receiving
orders”8. Other yard managers equally said that Korean yards will move away from
the  tanker  and bulk  carrier market segments as  cost increases  due to  higher  wages,
inflation and exchange rate movements no longer allow to achieve a profit on lower
value vessels. This development has not materialised and consequently, a number of
Korean  shipyards  have  reported  losses  for  2002.  Other  yards  have  reported  pro-
forma profits.

Of  particular  interest  is  the  investigated  order  for  a  5100  TEU  container  ship  for
Hamburg Süd.  This  order  received  bids  from one  European and two Korean  yards.
DSME  finally  won  the  order  with  an  offer  price  of  55.0  Mio.  USD,  leading  to  a
complaint  by  SHI  to  the  Korean  Government  about  price  under-cutting  by  DSME.
The Korean Government then ordered DSME to raise the price to SHI’s level of 58.0
Mio.  USD.  As  a  justification  of  this  exceptional  move  by  the  Korean  Government
(which  repeatedly  had  claimed  vis-à-vis  the  Commission  to  have  no  influence  on
business practices  of Korean  yards) the Director of  the  shipbuilding  division  at  the
Ministry  of  Commerce,  Industry  and  Energy  stated  that  “Daewoo’s  price  offer,
which  looks  too  low  in  view  of  the  market  prices,  might  hurt  fair  competition  and
damage (the) credibility of Korean exporters”9. It is unclear whether DSME actually
increased the price, as Hamburg Süd insists that the contract was signed at the price
of 55.0 Mio USD and they saw no reason to accept such a substantial change.

8

9

Interview with Reuters, 7 March 2001
Lloyd’s List of 11 November 2002

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4.

CONCLUSIONS

The serious difficulties in world shipbuilding continue, with decreasing order intake
in  the  major  shipbuilding  regions  and  prices  locked  at  a  very  low  level.  The  main
reasons are production over-capacities, past over-supply, slowing economies around
the world and the effects of 11 September. The latter issue had a significant impact
on the short and mid term prospects of the cruise industry and thus the demand for
new  cruise  ships.  Fierce  intra-Korean  competition  has  to  be  seen  at  the  core  of
depressed prices for most ship types. Only Japanese and Chinese yards currently still
manage  to  increase  sales  through  stable  domestic  demand  and  good  price
competitiveness, respectively.

World-wide ordering for new ships in 2002 was down by ca. 12% compared to 2001.
In  the  EU,  where  production  increasingly  focussed  on  cruise  ships,  the  situation  is
much worse, with ordering being down by more than 50% compared to the year 2001
and more than 70% compared to the year 2000.

Most affected by  weaker  ordering  activity  are  container  ships  and  cruise  ships,  but
crude oil tankers, chemical tankers and LNG carriers have also seen lower demand.
Demand has increased in the segment of product tankers, due to replacement needs
stemming  from  new  EU  maritime  safety  legislation,  and  in  the  segment  of  bulk
carriers. However, this additional demand had a very limited impact on prices.

As a result shipyards are running out of work and a number of bankruptcies and lay-
offs, mainly in Europe, have already occurred.

Prices for new ships have declined further and are now at the lowest level for more
than a decade. Prices increases were not achieved in 2002 and are equally unlikely in
2003.

Yards in South Korea have further lowered offer prices, despite increases in all major
cost factors and, based on the Commission’s analysis, a number of Korean yards may
soon find it difficult to meet their short-term financial obligations.

The  Commission’s  detailed  cost  investigations  for  orders  placed  in  South  Korean
yards  confirm  the  findings  from  previous  reports,  namely  that  ships  are  offered  at
prices which do not seem to cover the full costs of production. Typically, provisions
for  inflation  and  debt  servicing  are  not  included  in  Korean  offer  prices.  The
investigations show that the gap between offer prices and calculated normal price is
again widening.

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