Shipping

EC: European yards may not survive price war

Baird Maritime

The European Commission has warned that shipyards and marine industries in Europe could face closure if the credit markets fail to ease soon.

The European Union's Brussels Industry Commissioner Gunter Verheugen said that the large capital requirements and lack of affordable finance could jeopardise the economic survival of these industries. He warned that European Union shipyards and marine industries might not be able to survive when forced to compete in a price war against their Asian counterparts.

"The high capital intensity of shipbuilding and its high pre-delivery financing needed might jeopardise the economic survival of European shipyards in case financial markets were not soon to return to business as usual," Mr Verheugen wrote in a briefing paper which was prepared for fellow commissioners.

"European yards do not have the means to withstand a price war or to operate below costs for very long."

Though for the short term, order books remain healthy, newbuild contracts have all but stopped coming in and Mr Verheugen warned that this would be potentially damaging as European yards depended on their innovative edge to keep ahead of Asian competition. He added that Asia's "mass market shipyards" would almost certainly enter more niche markets and offer considerably low prices than European companies.

The Secretary General of the Community of European Shipbuilders Associations (CESA) has agreed with Mr Verheugen's warnings, adding that there was a reason to be nervous.

Reinhard Luken pointed to the increase of lay-ups and scrappings. However Mr Luken warned against lowering prices in Europe for new build vessels, predicting that it would have a devastating impact on the entire industry.

Mr Luken said that by doing so, owners might unnecessarily purchase vessels and that it would hinder the need to reduce global yard capacity as there are fears that the world's shipbuilding capacity would outstrip demand in the future.