Competition from China and South Korea - how can shipbuilding in Germany remain competitive?

Germany used to be one of the leading nations in shipbuilding, but today the markets are dominated by shipyards from South Korea and China. The German shipbuilding industry has to contend with intense global competition. This raises the question of how Germany can maintain its competitiveness. This article informs you about the challenges currently facing German shipyards, the influence of Asian competition on the market and strategies that Germany can use to maintain or build up its competitiveness in shipbuilding. 

Estimated reading time: 16 minutes

How does German shipbuilding compare internationally?

The international shipbuilding market is now dominated by Asian countries and has been for many years. More than 90 per cent of all newly built merchant ships, i.e. cargo, oil and container ships, are built in shipyards in China, South Korea and Japan. Together, these three countries produce most of these ships. In an international comparison, Germany is not at the top of the league. According to Statista Germany is the fifth largest shipbuilding country after China, South Korea, Japan and Italy. However, Germany is mainly active as a high-quality niche product in terms of ship chandlers. 

German shipbuilding companies manufacture specialised vessels such as cruise ships, frigates, submarines and megayachts. In these areas, German shipping still commands the world. The German company Meyer Werft in Papenburg, for example, builds some of the largest cruise ships in the world. Even the German navy's military vessels are in high demand on the international market. In niche markets, the Germans can keep up with the competition on the international market. Nevertheless, the market share in tonnes, measured against the number of ships produced, is very low.

German quality

While Asian shipyards mass-produce large numbers of standard cargo ships, German shipbuilding sticks to quality, high-tech and customised solutions. Nevertheless, large shipyard locations in Germany are a thing of the past. Names such as Meyer Werft, ThyssenKrupp Marine Systems or Lürssen do not stand for mass production, but for highly specialised shipbuilding projects. They produce high-quality individual orders in order to consciously differentiate themselves from the Asian product range.

Why do China and South Korea dominate global shipbuilding?

Of course, it is no coincidence that China and South Korea are leaders in the international shipbuilding market. Both nations have invested heavily in their shipbuilding industries in recent decades and have large domestic sales markets. High levels of investment and favourable loans from the Chinese government support their shipyards. This allows Chinese suppliers to keep prices in the shipbuilding competition often far below those of European shipyards. 

South Korea has achieved its leading position through technological specialisation and government industrial policy. The establishment of large shipyards such as Hyundai Heavy Industries or Daewoo Shipbuilding has made series production possible on a previously unknown scale. These shipyards also have significantly lower labour and energy costs compared to Germany. 

German shipyards are increasingly confronted with competition from Asia. Europe ended its shipyard subsidy programmes years ago, so there is no fair market. Chinese and Korean shipyards suffer from high social standards and energy costs, resulting in more favourable prices for a highly technical process. Chinese shipbuilders are almost exclusively domestic. 

More than 97 % of Chinese freighters for Chinese shipowners are built by Chinese shipyards. However, German shipowners place orders almost exclusively in the Far East. In 2021, 99 % of all German orders from German shipowners were placed with Chinese locations and South Korean shipyards. China is already penetrating the cruise industry.

What challenges is the German shipbuilding industry facing?

The shipbuilding industry in Germany is facing a number of challenges. The most important difficulties include

• High cost structure: High costs for wages, materials and energy are a challenge for German shipyards. This leads to higher costs for "Made in Germany" ships and makes it more difficult to compete with Asian suppliers, who have lower costs.
  
• Lack of economies of scale: Compared to the mega shipyards in Asia, the capacities of German companies are lower. As individual projects and smaller series hardly allow for mass production, this results in higher unit costs.
  
• Government support in Asia: In China and South Korea, shipyards are subsidised, while there is a lack of direct subsidies or protectionist measures in Germany and the EU. This disadvantage makes the market particularly challenging for suppliers from Germany.
  
• Low domestic demand: Only a few orders are placed with German shipyards at home. German shipping companies build almost all of their cargo ships abroad. As a result, local shipyards lack a stable domestic market that could ensure basic capacity utilisation.
  
• Technological change: Only a few orders are placed with German shipyards in Germany. Almost all cargo ships from German shipping companies are built abroad. As a result, local shipyards lack a stable domestic market to ensure basic capacity utilisation.
  
• Bureaucracy and regulations: Strict regulations and lengthy approval processes can delay and increase the cost of shipbuilding projects in Germany. Asian competitors generally benefit from simpler procedures and fewer bureaucratic hurdles.
  
• Shortage of skilled labour: Well-qualified shipbuilding engineers, welders and skilled labour are in short supply. Demographic change and competition from other sectors are leading to staff shortages, making it difficult to realise large projects.
  

Together, these factors illustrate the reasons why numerous German shipyards have experienced economic problems in recent years. While some traditional shipyards have filed for insolvency, others have been taken over by foreign investors. Although the challenges for German shipyards are considerable, there are also opportunities for Germany to remain competitive in shipbuilding.

How can German shipyards remain competitive in the global market?

In view of the intense competition from Asia, the question arises as to how the German shipbuilding industry can hold its own in international competition. There is no simple answer, but experts have been able to identify the most important points. Firstly, German shipbuilding can hold its own through innovation and specialisation. Industry analysts believe that innovation and special shipbuilding are crucial for competing against unfairly subsidised mass shipyards. In addition, German shipyards will also be successful in the future if they continue to build technically sophisticated specialised equipment that is difficult to imitate. 

Secondly, European yards, especially German yards, can work more closely together. While it is difficult for each individual producer, European yards can work together to produce more goods at a favourable price. In addition, they should coordinate more closely with suppliers - German yards are already uniquely strengthened by the advanced German supply industry. 

Thirdly, companies and the state should continue their R&D investments. By becoming a technology leader, one frees oneself to a certain extent from the price war. By expanding into Africa and engaging in intensive dialogue with the shipping industry, the German government or, more effectively, the German economy could tap into booming markets.

In any case, maintaining the core elements of the German shipbuilding industry requires a combination of entrepreneurial strategy, technological leadership and supportive industrial policy measures. Its Asian pursuers will not relinquish their lead, and long-term political and business involvement is of paramount importance. Many of these steps will take a little longer to take full effect, but they are essential to the future of "Made in Germany" construction.

What innovations characterise German shipbuilding?

Despite all the difficulties, Germany's shipbuilding industry is known for its innovative strength. German shipyards and their engineers are setting ever more technical standards in the industry. The cruise ship built in Germany is the first of its kind in the world to be powered by LNG. Such innovations in shipbuilding today show that Germany can play a leading role in the high-tech industry. To achieve this, many shipyards work closely with research institutes and universities. They do all this to develop new solutions in ship design, innovative fuels and more. Approximately 25 % of employees in German shipyards are highly qualified engineers and technicians.

This shows the high proportion of high-tech in shipbuilding. In terms of current innovations in the German industry, the innovations are mainly in ships that are more environmentally friendly and efficient as well as in more intelligent production processes. For example, digital twins are increasingly being used. Before a ship is built in the shipyard, a 3D model is created on the computer and tested virtually. There are also welding robots, other automation technology and modular construction methods that are being tested to reduce costs and improve quality. 

The innovative strength of German shipyards also lies in their ability to develop customised, complex products. From specialised research vessels to custom-built luxury yachts, this excellent reputation of German shipbuilding is based on innovation. Nevertheless, German shipyards must constantly evolve. Asian shipyards are catching up, especially China, which has now made the development of high-tech ships a national strategy.

Is Germany focussing on sustainable shipbuilding technologies?

Sustainability is also playing a greater role in shipbuilding. As part of the global energy transition, the German shipbuilding industry is endeavouring to develop and introduce more environmentally friendly technologies. In particular, other types of propulsion have played an important role here, with liquefied natural gas and methanol and, in the future, hydrogen and electric hybrid propulsion systems replacing heavy fuel oil and diesel. To this end, German shipyards and existing suppliers are involved in a large number of new pilot projects to build ferries that produce as few emissions as possible or ships that are trained to run on fuel cells, among other things. Sustainable shipbuilding technologies could even become a competitive advantage in Germany if stricter environmental regulations are introduced worldwide.

Customers such as cruise lines are also increasingly focussing on travelling on "green" ships. Gaining experience at an early stage makes it possible to stay up to date and secure market share in new segments. Of course, all this requires considerable investment. Shipbuilding companies are faced with updating their outdated plant technologies, training their staff and implementing new processes. Indeed, enormous resources are undoubtedly needed to keep up with the demands of your industry and develop climate-friendly ships. However, it is stated that German shipbuilding, for example, is increasingly focusing on sustainability and using new filter technologies, shore power connections and optimised hull designs to reduce fuel consumption.

Together with government environmental regulations such as the EU emissions trading scheme for shipping, this creates a pressure to innovate that will continue to improve the future competitive position of the pioneers. Those who build on sustainability in shipbuilding at an early stage will soon be able to assert themselves as quality providers in front of their environmentally conscious customers. At some point, international climate pressure will be so high that low-emission or emission-free ships will be the only option in demand. This means that shipyards that acquire expertise in this field at an early stage will once again have a clear advantage.

How is digitalisation changing shipbuilding?

In the area of administration and logistics, digitalisation leads to efficiency gains, for example by providing real-time data on material stocks and supply chains. Overall, digital transformation is an important means, especially for shipyards, to reduce costs while maintaining quality. This is particularly important for German shipyards, as they do not necessarily have the same low cost structures as the Asian giants.

In addition, completely new business models are being developed. Shipyards could offer their customers digital services, including condition-based maintenance - thanks to sensors on board - and crew training in virtual environments. Digitalisation is also influencing processes in German shipbuilding, as the German government is funding projects that support the adaptation of new digital systems in shipyards. Overall, producers will be able to deliver market-compliant products if they implement key elements.

Is the German shipbuilding industry suffering from a shortage of skilled labour?

Like many other branches of industry, shipbuilding in Germany is also struggling with a shortage of skilled labour. In particular, qualified welders, shipbuilding engineers, electronics technicians and other skilled workers are in short supply. Work in the shipyard is challenging, and not every young skilled worker chooses this path. At the same time, employees with experience are gradually retiring from the labour market. This gap is problematic for German shipyards: If there is a lack of personnel, projects are delayed or have to be realised in a reduced form.

In order to cover order peaks, many companies make use of temporary workers and labour contractors and employ skilled workers from abroad, such as Eastern Europe. This strategy of German shipyards to combat the shortage of skilled labour provides flexibility, but can also bring challenges (such as language barriers or a higher coordination effort). It is important to attract more young people to this industry in the long term.

This includes attractive training, opportunities for further training and measures to enhance the image of the industry. After all, in order to keep pace with technological developments and deliver its renowned quality, German shipbuilding needs well-trained personnel. The industry and politicians have recognised the need for action and are investing more money in training courses, study programmes in maritime engineering and the recruitment of foreign specialists.

In which sectors is there a shortage of skilled labour?

In Germany, as in many other industrial sectors, there is always a shortage of skilled labour. This includes Weldingshipbuilding, Electronics and many other specialisms. Working in a shipyard is difficult, and most young professionals choose not to follow this path. At the same time, experienced workers are slowly retiring. 

This is a major problem for German shipyards. Without workers, there is no way to organise a project on time or implement it to its full extent. Many companies use temporary labour and contractors to cover fluctuations in capacity. In order to keep pace with technological developments and maintain its quality, the German shipbuilding industry needs a well-trained workforce. In the long term, the industry needs more young people to recruit great shipyard employees. Attractive training programmes are important for this. The opportunity for further training and a better image in the shipbuilding sector would help. The industry has already recognised the need for young workers and is increasingly investing in training programmes and courses of study in maritime engineering as well as in the recruitment of foreign skilled workers.

Conclusion

The German shipbuilding industry is facing major challenges in international competition. However, with the right strategy, it can continue to survive. To remain successful despite pressure from costs and competition, innovation, focussing on high-quality niches, sustainable technologies and digital processes are the decisive factors. In addition, motivated skilled labour and meaningful partnerships are essential. If German shipbuilding concentrates on its strengths - quality, high-tech and flexibility - it can secure its competitiveness and continue to make the "Made in Germany" label a seal of quality on the world's oceans.

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FAQ - Frequently asked questions about German shipbuilding in global competition