MIMA SEMINAR ON THE STATE AND FUTURE OF MALAYSIAN SHIPYARDS: TOWARDS IMPROVED CAPABILITY AND CAPACITY 16 NOVEMBER 2006
OPENING REMARKS BY DATO’ CHEAH KONG WAI DIRECTOR GENERAL, MIMA
Distinguished speakers, Esteemed participants, Ladies and gentlemen, Welcome to MIMA’s Seminar on the State and Future of Malaysian Shipyards: Towards Improved Capability and Capacity. This is an important subject given the fact that shipbuilding has been identified by the Government in the Third Industrial Master Plan 2006-2020 or IMP3 as an important component of the marine transport sub-sector. This seminar will address the current issues and challenges faced by the sector as well as looking at the future towards improving our local shipyards’ capability and capacity. I am pleased to welcome the participants who come from the shipbuilding and ship repairing sector and beyond. Quite a number of you have come all the way from yards in Sabah and Sarawak. To me, your presence here today is an indication of your keen interest in this significant topic and an acknowledgment of the need of the stakeholders to put our collective thinking caps to discuss developments in the industry together. You will be enlightened by speakers from the shipbuilding industry itself and from various related agencies who will share their insights and expertise on the subject. Ladies and gentlemen, Shipbuilding is an important and strategic industry in a number of countries around the world. Japan used shipbuilding to rebuild its industrial structure after World War II, while Korea made shipbuilding a strategic industry in the 1970s. China is now following Japan and Korea with large state-supported investments in the industry, and has plans to become the world’s largest shipbuilding nation by 2015 and command 35% of global orderbook. The success of these three nations in this industry stands as evidence of the enormous role that shipbuilding can play in developing a nation’s economy. The world shipping and shipbuilding industry is currently enjoying a strong upturn. The World Marine Propulsion 2006-2010 report stated that there is a surge of orders for vessels and full
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orderbooks for yards as a result of the strong growth of the world economy. Further underlining the tremendous growth in shipbuilding, the world merchant fleet expanded to 895.8 million deadweight tonnage (DWT) on 1 January 2005, growing 4.5% from the previous year, according to UNCTAD. The exuberance in the sector is attributed to several factors, which include rising demand for shipping services due to booming world trade, IMO’s ruling to phase out ships with single hulls, and the very strong growth of the Chinese economy. The rise of China, which is now the world’s fourth biggest economy and a rising maritime power, is especially noteworthy as it has injected plenty of excitement into the shipbuilding industry. On the back of China’s continued economic rise and the growing global maritime trade, there is cause to be optimistic about the sector’s outlook. It is expected that the total value of the global shipbuilding output will exceed US$80 billion by 2008, with over 2,300 vessel deliveries, compared to 1,827 vessels in 2004. Amid this euphoria, it is timely that serious questions are asked of the state and direction of Malaysia’s shipbuilding and shiprepairing industry. Although local yards have made much improvement over the years in many aspects, there is still much work to be done for Malaysia to be considered as a serious player in this sector. Despite promising prospects for the industry due to the bullish outlook in the global shipbuilding sector and increasing demand for shipping services locally and regionally, our yards have not been able to truly capitalize on the sector’s purple patch and live up to the nation’s growing maritime reputation. Local yards are still saddled with many issues, including lack of manpower, rising operational costs, and excess capacity, among others. It is a known fact that in general, the local shipyards have limited shipbuilding and ship repairing capabilities, with many specializing in low-value and small vessels. To compound the matter, there is rising competition from yards in developing countries such as Vietnam and Thailand that offer low labor cost and harbor big ambitions to carve their names in shipbuilding. As a result, such countries have been more successful in luring orders and business compared to our yards. Even Malaysian shipowners commission vessels from foreign yards and send them for repair and maintenance abroad due to their competitive advantage. This situation has hampered the development of shipbuilding and ship repairing in the country, and compromises on our ambition to become a self-sufficient and world-class maritime nation. Reflecting the stagnation of growth in this sector, Malaysia remains a net importer of marine transport products, purchasing RM3.24 billion worth of products in 2005, compared to RM2.21 billion worth of exports. Major imports items include cruise ships, ferries, and cargo barges, which were valued at RM2.2 billion last year, underscoring our reliance on foreign-made vessels. The smaller Malaysian shipyards are also burdened by the lack of technological abilities, which partly explains the long time they take to fulfill orders. Many are now working overtime, mostly to meet backlog orders that could stretch well into 2008 due to a booming global shipping industry. It was reported recently that the current marine construction orderbook reveals that Malaysian shipbuilders have not managed to keep up with the performance other major regional players. Needless to say, if this situation persists, our yards will lose their competitiveness and lose business to foreign yards. Despite these setbacks, the Government continues to recognize the shipbuilding and ship-repairing industry as a major component of the marine sector. It provides many incentives for players in the sector, for example by providing the Shipping Finance Fund to encourage the growth of the local 2
shipping sector, and promoting the industry to foreign investors. It is up to the players to take advantage of the incentives provided and complement the support with solid business plans of their own Ladies and gentlemen, While I may not have sounded very upbeat thus far, we should not paint an entirely gloomy picture of the local yards. With an exhaustive assessment of the situation, and with greater push and more resolve among the stakeholders, I am sure that our shipbuilding and ship repairing industry can improve and develop further. Instead of wallowing in the woes of the industry, we should take the cue from the likes of Japan and Korea which started in the industry from scratch, and from new entrants like China which is fast rising as a shipbuilding superpower. If they can be successful, there is absolutely no reason for us not to emulate their success. I hope that the focus of the seminar today on the state of play of the Malaysian shipyard sector can help shed light on the issues and challenges faced by the industry, and shine the path to a better future. I am steadfast in my belief that although the local industry faces huge challenges now and ahead, there is a lot of potential for our yards to improve and grow further. It is my fervent wish that the ensuing discussion from the perspectives of various stakeholders, and contribution from the floor, will contribute to the discourse to help boost the shipbuilding and ship repairing industry, and provide meaningful directions to overcome the issues and challenges it faces. I thank you once again for your participation in our seminar and I look forward to your continuous support towards our other programs in the future. Thank you.
MARITIME INSTITUTE OF MALAYSIA 16 November 2006
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