From the magazine – Indeed, optimism in such a volatile industry as shipbuilding is almost a prerequisite for survival. But it does sound somewhat paradoxical, to say the least, to display such optimism about the mood in German shipbuilding at a time when the government needs to step in for billions to prop up the country’s largest civilian shipbuilder, Meyer Werft. At the same time, Italian Fincantieri and US private equity institutions are angling like vultures for a takeover of the country’s largest naval builder.
In every issue of SWZ|Maritime, SWZ|Maritime’s editor-in-chief Antoon Oosting writes an opinion piece under the heading “Markets” about the maritime industry or a particular sector within it. In the July-August 2024 issue, he provides insight into the German shipbuilding industry. The opinions expressed in this article are those of the author and do not necessarily reflect those of the publisher, the SWZ Foundation, the KNVTS, or other editors.
But before a non-German like yours truly posts his critical comments, it is first up to German entrepreneurs themselves how they view their business sector’s conjuncture. According to a survey (25 June) by the IHK (Industrie- und Handelskammer) Nord – the association of thirteen north German chambers of commerce and industry – the maritime sector in northern Germany is confident about the future with the economic prospects for the maritime industry in Germany improving this spring.
Compared to autumn 2023, the three subsectors shipping, port industry and shipbuilding have shown strong growth in some cases. Yet, companies are concerned about economic conditions, labour costs, energy price trends and the continuing shortage of skilled labour.
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Barometer rises
The economic barometer rose most in the shipbuilding sector with an increase of 61.8 points. Here, 27.8 per cent of surveyed companies rated the development of the business situation as more favourable, 65.9 per cent as unchanged and only about six per cent as less favourable. Shipyards see economic risks in the recruitment of skilled personnel (94.4 per cent), the development of labour costs (72.9 per cent), the development of economic policy conditions (81.3 per cent) and energy and raw material prices (42.4 per cent).
‘Despite this positive snapshot, we welcome the recent decision of the EU Competitiveness Council on the need for a maritime industrial strategy for Europe in light of the high subsidies in the main shipbuilding countries in Asia and in view of the demand for maritime sovereignty,’ said IHK Nord chairman Dr Bernhard Brons. ‘Special attention should also be paid to the challenging situation in cruise ship construction.’
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VSM summer party
The problems in the German shipbuilding industry were also a major topic of discussion at the summer festival of the Verband für Schiffbau und Meerestechnik (VSM) on 26 June on board the museum ship Cap San Diego in Hamburg with 280 guests in attendance. According to VSM chairman and Fassmer shipyard CEO, Harald Fassmer, the German shipbuilding industry suffers, among other things, from excessive bureaucracy, a lack of skilled labour and distortions of competition, not only from Asia, but also within Europe.
‘Those who bear responsibility here need strong nerves, a lot of experience and a lot of enthusiasm,’ Fassmer said in the VSM summer festival report on the Hansa website. According to Fassmer, the German shipbuilding industry has unfortunately already lost much of its substance in recent decades. The last few years in particular have left their mark. The largest civilian shipbuilder is currently facing a serious crisis through no fault of its own.
‘We hope Meyer Werft will find proper solutions as soon as possible and that the company will soon have enough water under its keel. This is of paramount importance for the industry. We cannot afford a further loss of substance. We urgently need a break in the trend,’ Hansa quoted the VSM chairman as saying.
Climate-neutral ships
A bright spot, according to Fassmer, is that politicians are now becoming aware of the need. ‘Recognition is the best way to improve,’ he told Hansa. Fassmer referred to the European Commission’s recent mandate to develop a maritime strategy, which he expects will also benefit efforts at the national level.
Work is now underway on a national action plan on “climate-neutral shipping”, alongside other initiatives at the federal level. Ultimately, the aim is to implement concrete measures that really help the sector. These include urgently needed investments to support the construction of offshore platforms and converters at German shipyards or the obligation to build climate-neutral ships.
At the summer party, Fassmer also discussed the current order situation: ‘The capacity utilisation of our companies is for the most part very good and we can expect stable, even increasing demand in all segments in which we are active as shipbuilders, suppliers or in the field of maritime technology. As mentioned, politicians have also recognised the strategic importance of our industry. The outlook for the future should therefore be positive.’
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Rescuing Meyer Werft
By early September at the SMM, the negotiators should have reached an agreement, but at the time of writing, the rescue of Meyer Werft is still being worked on. It is one of Europe’s three largest and, therefore, one of the world’s leading builders of the world’s largest cruise ships. Meyer Werft, with shipyards in Papenburg, located on the Dutch border near the province of Groningen, Rostock in eastern Germany, and Turku in Finland, has a thickly stocked order book with which the shipbuilders can continue for years to come.
And yet the company needs as much as € 2.7 billion in credit until 2027 to survive. North German public broadcaster NDR reported that Meyer Werft will have to repay a loan of € 550 million in November this year, an amount it does not have.
The financial problems started with the Covid crisis. The major cruise lines negotiated postponement of their existing newbuild orders. Laying off staff was not an option, because just try to get them back after the pandemic. As fewer ships were delivered, turnover fell sharply, especially in 2020, while costs continued to rise, resulting in a loss of over € 180 million. A loss that the yards have not been able to make up for in the following years, despite making profits again.
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Ukraine war
The yard in Turku, Finland, acquired by Meyer Werft in 2015 is also doing well in terms of new orders, but not financially. The Finnish arm of the German shipyard group, operating under the name Meyer Turku, recorded a loss of € 103 million for 2023 despite a ten per cent increase in turnover to € 1.43 billion and the delivery, to US cruise line Royal Caribbean International, of the Icon of the Seas. With a gross tonnage of 248,663 and a length of 365 metres, this is the world’s largest cruise ship to date.
After the pandemic, cruise shipyards are now also suffering greatly from the Ukraine war unleashed by Russian dictator Putin. As a result, the cost of energy and materials to build ships has risen sharply.
The state of Lower Saxony, in which Papenburg is located, and the federal government are now negotiating with the Meyer Werft management for financial support. Maintaining the yards is worth something to politicians as they are crucial for maintaining employment and the German shipbuilding industry as a whole. The shipyards in Germany themselves employ 3300 (Papenburg) and 450 (Rostock) people, but through the supplying companies, a multitude of people depend on the yards’ survival.
However, the pockets of the Länder and federal government are not infinitely deep and nobody in Germany wants a repeat of the HSH Nordbank ship loans debacle in which the Länder of Hamburg and Schleswig Holstein had to write off € 9.2 billion last year. A toxic legacy of the banking crisis that emerged in 2007/8.
Foreign influence
Besides Meyer Werft’s financial problems, Germany is struggling with another problem: parent company ThyssenKrupp’s desire to sell its maritime subsidiary and Germany’s largest naval builder, tkMS (MS stands for marine systems). The submarine construction specialist, which recently saw its bid to build four new submarines for the Royal Netherlands Navy go down the drain, risks ending up partly or completely in foreign hands as a result.
There is now a plan by US private equity firm Carlyle Group to launch a joint takeover bid for tkMS with German development bank KfW, in which state-controlled KfW would acquire a controlling minority stake.
But besides the US private equity investors, who are often portrayed as locusts in Germany, another privateer lurks in the form of Italian state conglomerate Fincantieri. The Italians would thus become Europe’s largest naval builder with a subsidiary in Germany, a thought that no doubt horrifies the Germans, because control would then be in Rome and no longer in Germany itself. German politics has no desire for statecontrolled companies, let alone foreign powers, seeking monopoly positions.
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Freie Marktwirtschaft
German politics has long been a firm believer in the “Freie Marktwirtschaft” in which companies compete to make their own ends meet and market products at fair prices. But with the financial problems at Meyer Werft and the sale of tkMS, German politicians are now once again forced to intervene and come up with money to maintain what is necessary for Germany’s future as a thriving industrial state.
Respond to this article by sending an e-mail to Antoon Oosting, editor-in-chief and author of this article: swz.rotterdam@knvts.nl.
Cartoon by Hans de Wilde/SWZ|Maritime.
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