In its annual report, German trade organisation Verband für Schiffbau und Meerestechnik (VSM) says a fundamental, political change of course is becoming increasingly urgent for the maritime industry in Germany and the EU. The war in Ukraine has shown that things need to be different from here on out.

The general public suddenly became aware of the lack of energy import terminals, the delayed expansion of offshore wind energy, the vulnerability of critical infrastructure on and under water and the limited ability of the emergency services, including the German Navy, to act, says VSM. However, awareness of the problem and the pressure to act should not only be derived from the intensity of the public debate.

According to VSM, one thing is clear, nothing works without the maritime industry: Ships must become much more energy-efficient and be able to use climate-neutral fuels; a new fleet must be created to build the huge power plants offshore for the production of renewable energy; armed forces need the resources to do their jobs. We want to explore the sea with powerful research ships, we want to extract and use raw materials from the sea and we want to continue to make great holiday experiences on the water possible.

Also read: Europe’s large shipbuilding in dire straits

Market distortions can still be tackled

So there are many good reasons for a clear and long-term growth path. However, demand does not automatically lead to value creation, especially not in a global market that has been shaped by massive distortions for decades. The industry has to convince with good ideas and good products. It must train and invest skilled workers. But it has to be able to do that.

The EU as a whole hasn’t really worked hard on this in recent years. While the major Asian shipbuilding countries leave no doubts about the strategic importance of the shipbuilding industry. 25 years ago, the EU decided to end support for shipbuilding. At the same time, China went the opposite way and poured out the state cornucopia over its shipyards and shipping companies.

It has taken a long time to recognise in China not only the wonderful partner with fairytale growth rates, but also the systemic rival that meticulously creates strategic dependencies. These are also becoming increasingly apparent in the maritime industry. However, thanks to the breadth and excellence of the skills available in Germany, we can still turn things around, stresses VSM. The ingredients for sustainable growth are ready: needs, ideas, skills. ‘All that is missing now is the political courage to leave the well-trodden path and break new ground. Different from here on out!’, says VSM.

Also read: In SWZ|Maritime in June 2023: Dutch shipbuilding and the last Maritime Monthly

Cast off, course for growth!

Cast off, course for growth! Under this motto, the VSM calls on the German government and the EU to finally enable the implementation of the enormous growth prospects for the maritime industry in Germany.

The maritime industry in Germany must grow by at least a factor of two in the next five to ten years so that it can make an adequate contribution to the major tasks. It is prepared to make investments of over EUR 1 billion and will continue to invest above average in the training of the skilled workers of tomorrow.

Criteria for awarding contracts

Orders are a crucial prerequisite for growth. That is why the criteria for awarding contracts must be readjusted as follows according to VSM:

  • In merchant shipping, the construction price is by far the most important decision criterion today. Bid prices below cost price despite record demand are a clear indication of market distortions – characteristic of the shipbuilding market for decades. In this context, capital costs hardly influence the price of the transport service and are economically insignificant. This is all the more true since low construction prices stand in the way of a technically possible, significant improvement in energy efficiency. A consistent fleet renewal programme for coastal transport within Europe, linked to value creation in the European internal market, can compensate for this market failure. Incentives for a maximally energy-efficient fleet are also the best preparation for the coming multiplication of energy costs in shipping and make the medium-sized shipping industry in particular fit for the future.
  • The expansion targets for the production of renewable energy offshore are very ambitious, and not only in Europe. Europe should not also be dependent on third countries for the ships and plants needed for this, but should create sufficient production capacities of its own. This is the only way to ensure our own capability profiles and availability. Here, too, moderately higher capital costs are insignificant in terms of electricity production costs. The advantages of domestic value creation, especially in terms of safety, far outweigh the disadvantages. This must be consistently taken into account through appropriate framework conditions in Germany and at the EU level.
  • Germany will continue to be an energy importing country. The VSM supports the Seeheim Circle’s proposal to secure state access to corresponding transport capacities in order to avoid blackmail. The state already owns civilian shipping units, some of which are operated by private shipping companies. It makes sense for the state to fulfil further tasks with its own fleet if the corresponding tonnage is not available or not reliably available from market participants. Japan uses the model of temporary “co-ownership” as an instrument of economic promotion and resilience enhancement.
  • Procurement processes for the German Navy are a special topic area. So far, there is no evidence that the turn of the times has changed the situation with regard to naval equipment. Concrete procurement plans to be implemented in the short term, with fundamental comprehensive consideration of the defence industry’s key technology of naval shipbuilding and national security of supply, are not in evidence.
  • In the currently most important civilian markets of the German shipbuilding industry, cruise ships and yachts, the outlook is basically optimistic. However, in order not to undermine the global technological leadership of German manufacturers in these sub-segments, the general conditions must not deteriorate. In particular, financing instruments that are in line with the market must be fully preserved and must not fall victim to an ideological debate.
  • This also applies to marine mining. Germany has called for a “precautionary pause” in deep-sea mining at the International Seabed Authority (ISA) and has declared that it will not support any applications for commercial mining of raw materials in the deep sea until further notice. From VSM’s point of view, the use of raw materials from the sea is unavoidable in order to realise the move away from fossil energy. Those who want to protect the oceans must now ensure the highest possible technical sustainability standards, which German companies in particular are developing.

Also read: European shipbuilding: Quo vadis? European Jones Act? A personal observation