K J Somaiya Institute of Management Studies and

Research

Project 1

Can India Become a Global Shipbuilding Hub?

Submitted to
Dr. Pramod Shetty

By
PGDM-A
Shyamanta Borah (Roll no. 5)
Gayatri Hadawle(Roll no. 15)
Touffiqu Khan (Roll no. 25)
Prerit Nagori (Roll no. 35)
Manish Pathak (Roll no. 45)
Aviral Singh (Roll no. 55)

List of Contents
Global
Scenario
..03
Indian
scenario
.............05
Major
Players
..06
1. Major
global
players
..06
2. Major
Indian
players
..07
2.
a.
Public
Sector
players....0
7
2.
b.
Private
sector
players...08
Factors aiding the growth
India..09

of

Shipbuilding

industry

in

Factors restricting the growth of Shipbuilding industry in

India....10
Case Study Mazagon Dockyard Limited
.....11
1. Introduction

.12
2. SWOT
Analysis
....12
2

3. Problems
Faced
..13
4. Steps taken to tackle the
problems..13
5. Future
outlook
....14
Case Study L&T
Shipbuilding.
..15
1. Introduction

.15
2. SWOT
Analysis
....15
3. Problems
Faced
..16
4. Steps taken to tackle the
problems..16
5. Future
outlook
....16
Conclusion
....17
References
....18

Shipbuilding Industry in India

World Shipping History and Global Scenario
Shipbuilding is the construction of ships and other floating vessels. The
specialized facility where takes place is called Shipyard.
Shipbuilding is known to be one of the oldest and highly competitive markets in
the world. Great Britain was the leader of industry till 1950 since 1860s. Great
Britain lost its leadership due the failure to modernize shipbuilding industry. The
industrial revolution brought the use of new materials and designs that
changed the shipbuilding industry. The gradually adopted material in ship
construction was Iron, where greater strength was required. From mid 1950s to
mid 1990s, Japan was at the top in shipbuilding industry which was due to
weakening of competitive power. Japan reduced the Shipyard R&D to less than
1%. South Korea maintained the competitive power and became the number
one country post mid 1990s. S Korea followed the previous experience it has in
this sector and its low labor cost helped it reach the top. China took the
industrial expansion strategy and surpassed Japan in year 2006 and then South
Korea in year 2009 due to the lowest cost of labor, growing shipyard capacity,
governmental subsidies ad state programs for the development. Now again
South Korea is on its rise.
New entrants in shipbuilding industry are countries such as Vietnam, India,
Brazil, Turkey, Philippines and Russia. They are growing up and together have
reached the quantity of orders which is equal to the total orders of Europe.
Currently 41% of market share is handled by South Korea which is in production
of large vessels such as cruise liners, super tankers, LNG carriers, drill ships and
large container ships.

Two types of factors affect the shipbuilding industry. They are Macro Factors
such as oil prices, world seaborne trade, political and economic stability and
Market Factors such as scrapping of old vessels, scrapping of old vessels,
charter rates and vessels on order. Among the main factors, labor cost is the
key factor and it affects the competition of various shipyards hugely.

Challenges faced by the industry are overcapacity and lower prices, financing of
new orders, lower order volumes and the change in ship economics, ship
designs and regulations and product mix. Fuel cost and Regulatory Economics
are also the driving the phases of investment.

Indian Scenario
Indias shipbuilding industry is critical to its strategic and economic interests
and is characterized by high growth potential. Shipbuilding produces
byproducts to other industries, including steel, engineering equipment, port
infrastructure, trade and shipping services. India has about 8,000 kilometers
long coastline, around 32 shipyards, 12 major ports and 200 ports under states
jurisdiction. This presents huge scope for development of shipbuilding sector
considering that country's opportunities in the sector have not been utilized
fully. The annual turnover of the industry during 2010-11 was US$ 1.3 billion
and has consistently grown at a CAGR of 8% during the period 2007-11.The
Indian ship builders occupied 6th rank globally accounting for 1% of the global
order book aggregating compensated gross tonnage (CGT) of 2.4 million with
257 vessels on order in year ending 2010.
Globally, the top three countries in international shipbuilding South Korea,
China & Japan had a ruling hold in the industry with a combined new building
order of more than 90%. China was the runaway leader with 40% of the
tonnage compared to South Koreas 34%.These three countries contributed to
around 65% of global shipbuilding exports of US$ 174 billion in 2010. Korea led
the pack with contribution of 27% to global shipbuilding exports, whereas next
was China with global exports contribution of 23%. Japan stood third with
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contribution of 15% to global shipbuilding exports. India, in spite of being

number six in world exports and global order book for shipbuilding, accounts for
a share of close to 2.5% to world exports with figures of US$ 4.22 billion in
2010.The gap between India and other top performing countries is substantially
high.
The shipbuilding industry in India due to lack of private participation and firm
level inefficiencies and inadequate policy support has not succeeded in building
competitiveness. Follow key points arise after the comparative study of Indian
and global ship builders:
1. Supporting government policies: Major factor in establishing
global competitiveness:
A thrust is laid in all major shipbuilding countries by its government
through formulation of supportive policies and measures including
subsidies, financial aid, easy finance, tax benefits, preferential orders,
etc. Japanese and South Korean shipbuilding industries received
adequate support of government during the 1970s and 80s, which
helped them to emerge as top players in the world. Indian government
too has provided various support measures to the shipbuilding industry,
but these have been largely directed towards the public sector.
2. Foreign
investments
have
helped
in
building
global
competitiveness
Because of the fierce investments in the shipbuilding industry by the
private players such as reliance and L&T, the possibilities for investments
by foreign player in the Indian market has increased. However, it will
depend on the amount of FDI allowed and the labour costs which are
currently not rising as per the global standards.
3.

On skill development and R&D is a key factor for maintaining

competitiveness
The stingy investment in Research and Development in the shipbuilding
companies in India has been acting as fetters to the growth of the
industry. For the comprehensive growth of the industry, there is a need to
create a knack for R&D along with the development of in house design
capability, infusion of new technology, development of skilled workforce,
adoption of industry friendly policies like building of special economic
zones (SEZs) so that Indian rise to the level of the global competitors.

4. Costs and availability of critical input material, man power and

technology
India has the lowest labor costs amongst the competing. The labor cost
per worker in leading shipbuilding countries like South Korea and
Singapore is $10,743 and $21,317 whereas in India it is estimated at
$1,192 per year. However most of the input material that is consumed in
the shipbuilding is imported in case of India which acts as a deterrent
other than already existing disadvantage of financing costs.
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5. Technological processes and innovation

India is lagging behind compared to global competitors in aspects of
technology and innovation. It has disadvantage in terms of poor
infrastructure, innovation and less investments in Research and
Development as compared to Korea, Japan and China. However coming
of the new players like Reliance and L&T into the shipbuilding realm
portends the arrival of a period which can lead to the boon of the
industry in India at the backdrop of make in India campaign.

Major Players
India ranks second among the Asian countries after Japan in terms of shipping
tonnage. Shipbuilding is a large industry which requires huge capital
investment & labor forces. Harbours with large spaces are ideal for this type of
industry.
Major Shipbuilding companies are rated on the base of TEU (Twenty foot
equivalent unit) or weight carrying capacities of their container ships.

Global Major Players:

Maersk- The A P Moller-Maersk group was founded in 1904 in

Copenhagen, Denmark. They have a huge fleet of over 600 vessels. They
became the biggest company in 2006 & are on top since then. It has the
largest container ship in the world, Emma-Maersk. It has a TEU of about
2.8m. It employees around 89000 people.

Mediterranean
Shipping
CompanyMediterranean
Shipping
Company, is located at Geneva, Switzerland. It has an intake capacity of
2.43m TEU. MSC was founded in 1970 & has a fleet comprising 471
container vessels. This shipping line operates in 150 countries and gives
employment to more than 24,000 people.
CMA CGM - CMA CGM Group, France's leading container shipping
company, has capacity of 1.55m TEU & has a fleet of over 428 vessels.
CMA CGM Group was formed when Compagnie Maritime d'Affretement
(CMA), founded by Jacques Saad in 1978, & was acquired by Compagnie
Generale Maritime (CGM). The shipping line has presence in 150
countries & it employs more than 20,000 people.
American President Lines (APL) - APL was incorporated in 1848 in the
US as Pacific Mail Steamship Company, which was bought by Neptune
Orient Lines (NOL) in 1997. Its headquarter is located in Singapore & it
operates a fleet of 150+ vessels & has a capacity of more than 1.1m
TEU. APL's containers have been used the world's major trade lanes for
the last 165 years. The shipping conglomerate provides more than 80

weekly services across 95 countries and also facilitates inland reach

through intermodal networks.

Indian Major Players: Indian shipping major players are divided

into two categories, i.e. Public sector & private sector shipbuilding
companies.

Public Sector:

Mazgaon Dock Ltd- It is also called as Ship builder to the nation

Main activities are construction of state-of-the-art warships and
submarines with facilities situated at Mumbai and Nhava. It has facilities
to build warships, submarines, merchant ships up to 30,000 DWT. The
company has a large number of workshops with sophisticated equipment
and machines specific to hull fabrication and ship construction work.
Hindustan Shipyard Ltd- In 1941, Scindia Steam Navigation Company
had set this shipyard in Visakhapatnam. In 1961, this shipyard became a
public sector enterprise. Shipbuilding, ship repairs & submarine refitting
are the kind of activities performed in the yard. The shipyard is relatively
small, area being 0.462 km 2. It has various advanced facilities for testing
& measuring. It can build ships up to 80000 DWT.
Cochin Shipyard Ltd- In 1972, this shipyard became a public sector
unit. Shipbuilding & ship repair facilities are being provided here. It is one
of biggest shipyards in India with capacity of about 125000 DWT. It
employs more than 1800 people. It has various advanced techniques for
testing & measurement.
Goa Shipyard Ltd: After the independence from Portuguese, India
realized that such an important port on western front would be very
beneficial for multiple purposes including shipbuilding. It has produced
around 167 vessels, including barges, tugs, landing craft, offshore patrol
vessels and other vessels for the Indian Navy and Coast Guard. It is a ISO
9001 certified company. They also provided various advanced tools &
techniques for testing.

Private Sector:

ABG Shipyard Ltd- This shipyard is one of the largest private sector
shipyards. It was established in 1985 & its headquartered at Mumbai &
plant is located in Gujarat. It provides shipbuilding & repair facilities &
has supplied more than 150 vessels. ABG Shipyard makes warships &
other vessels for Indian Navy.
Pipavav Shipyard- It is located on the western coast of India. It has
facilities such of shipbuilding, repairs, heavy engineering etc. It can make
ships up to 400000 DWT. It was the first private shipyard to get a license
to produce vessels for Indian Navy.
9

L&T Shipbuilding Ltd- L& T is an Indian multinational Conglomerate,

headquartered at Mumbai. Its works are located at Hazira & Kattupalli. It
has facilities like shipbuilding, repairs & refits.

The factors stated below are mentioned on a relative basis in comparison to

leading shipbuilding industries around the globe like China, Korea etc.

FACTORS AIDING GROWTH OF SHIPBUILDING

IN INDIA
1) LOW LABOR COST: It is a key factor in shipbuilding since it accounts for
more than 10% of total cost (fig 7a & 7b). Indian labor costs are low visa-vis leading shipbuilding nations.

10

2) STRONG DOMESTIC DEMAND: Indian shipping trade is booming on the

back of economic growth at approximately 8% rate. Domestic shipping
companies are expanding their fleets and have placed orders with global yards.
There is also a substantial growth in basic sectors like power and steel.
Companies are looking to acquire ships to control transport from international
mines.
The Governments new initiatives in Coastal Shipping and IWT (International
warehousing and transport), will further boost the demand of new ships. New
ports and IWT lanes would require dredging and other port-related vessel
support. Further, the ongoing offshore explorations would create demand for
rigs, OSV (Offshore supply vehicle) and PSV (Platform supply vehicle).

3) SUPPORTING INDUSTRY INFRASTRUCTURE FOR SOME COMPONENTS:

India has domestic industries, which produce few raw materials required in
11

shipbuilding. Specifically competitive steel manufacturing, light engineering

and IT/ITES industries can offer required products at economic costs
4) LONG COASTLINE: India enjoys a long coastline of more than 7500 km with
some deep-water ports which serve as good location for setting up shipyards.

Fig 2 Share of deliveries in 2007 for dredges tugs and OSVs( in DWT=dead wtg

tonnage)
5) OTHER FACTORS: Other factors aiding shipbuilding in India include the
limited surplus capacity available with the global shipbuilding yards and a
booming capital market, which can provide easy finance for capital and
operational expenses of these yards. India has proved its capability in
shipbuilding in the area of smaller vessels (fig 2) by getting a sizeable market
share.

FACTORS RESTRICTING THE GROWTH OF SHIPBUILDING

INDUSTRY IN INDIA

Indian yards face systematic disadvantages in several areas, which negate their
natural competitiveness and adversely affect their chances of succeeding in
globalized shipbuilding industry. Indian shipbuilders face all disadvantages of
30-40% of the cost of manufacturing a ship because of these factors. The key
disadvantages are as follows:
1) STATUTORY BURDEN: Shipbuilding attracts all complex set of levies
and duties. The differential rate of duties and taxes between India do
there nations leads to additional cost burden f or Indian shipyards.
12

2) LEVIES: Octroi, CST, VAT and excise duties are some of the levies
applicable to shipyards. Several shipbuilding nations have relaxed these
levies to encourage shipyarsds. In India VAT is refunded only on inputs.
The lack of special incentives for the shipbuilding sector leads to an
additional burden of 8% for domestic sales and 3% for export sales.
3) INDIRECT TAXES: Service tax at 12.6% is applicable on all design and
engineering
services procured by shipyards during the course of ship
construction. It is estimated that the extent of service contribution in the
contract price of all ships is around 12%.
4) Corporate tax affects Indian shipbuilders adversely as compared to
competitors. Though, the recent initiatives of Indian shipyards to structure
themselves as SEZ (special economic zone) enable them to offset this
advantage significantly.

FINANCING COSTS
(Financing costs have greater significance in shipbuilding due to its special
requirements)
5) BANK GUARANTEES: Shipyards are required to provide bank guarantees to
protect the ship buyer, which compromise performance guarantees (for timely
delivery), refund guarantees (for stage payments) and post-construction
guarantees (towards defects). As a result, the cost of bank guarantees in India
is higher than competing countries since there is no support from government
to reduce these charges.
6) WORKING CAPITAL: Approximately a shipyard requires a working capital of
around 25-35% of the cost of ships during the entire period of construction. On
an average the interest rates on working capital in India are 10.5%. Lower scale
of Indian shipbuilding industry leads to several disadvantages in design and
manpower costs.

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CASE STUDIES

Mazagon Dock Limited

Introduction
Mazagon Dock Shipbuilders Limited, Mumbai (MDL), an ISO 9001: 2008
Company is one of the leading shipbuilding and offshore fabrication yards in
India. The Yard was established in the 18th century. The company caters to the
needs of the Indian Navy, Coast Guard & ONGC in particular with its skilled and
resourceful service.
MDL has emerged as a major player in the sector of war-shipbuilding after its
takeover by the Government in the 1960s. It has produced a number of
warships, submarines and patrolling vessels for the Indian Navy over the years.
It also provides offshore structures for ONGC. The company provides a wide
range of products to domestic and foreign clients, Singapore being one such
foreign client.

Swot Analysis:
Strengths:

One of the leading shipbuilding and fabrication yards in India

Location both shallow and deep water level are available
ISO 9001:2008 certified
Granted Miniratna status by Government of India enabling enhanced
powers of capital expenditure, subsidiaries, strategic alliances and
mergers
Provides designing facility to other ship yards
Has shipbuilding experience of more than 150 years
14

Weaknesses
Unionism: major weakness of the company due to which expected
productivity cannot be achieved
Some technical equipments are not available in india and are to be
imported from outside
Aircraft carriers cant be built due to limited dry dock capacity
Opportunities:
Penetrate the export market for both commercial and defence vessels
Have joint ventures with leading private companies
Site expansion to get more projects
Threats
competition by private companies L&T started implementing Naval
projects

Problems faced:

has an order book of 1 lakh crores from the Indian Navy and is lagging
behind due to limited capacity and technical expertise
focuses on only Naval ships despite having the capacity of building cargo
carriers of capacity up to 30,000 DWT
competition by private companies like L&T who have started taking up
Naval Projects
tight schedule put up by government to deliver one submarine every six
months for the P-75 project

Steps taken to tackle the problems:

Joint venture with PIPAVAV : MDL entered in a JV with Reliance owned
Pipavav ship yard which is currently in the process of building the worlds
largest dry dock which can be leveraged to build aircraft carriers. The JV
focuses on taking the load off the MDL for the construction of submarines
and warships that have been lagging behind in schedule. With this JV
MDL can also start capitalizing on the aircraft carrier building which is
currently dominated by cochin shipyard. An added advantage of this JV
could be a shift in the focus from Naval Shipbuilding to Commercial Cargo
carriers
Partnership with DCNS: MDL has entered in a partnership with DCNS
a French Naval Engineering company to accomplish the P-75 project
which has been lagging behind by three years
Mazdock Modernisation project: the focus of the project is to
modernize the mechanical and technical operations. Some of the key
features include commissioning of the Modular workshop and Cradle
Assembly Workshop and commissioning of the new Wet Basin and
Heavy Duty Goliath (30 ton crane). The company has also adopted the
15

paradigm of Integrated Construction to tackle the lag in shipbuilding

and submarine building over the long run.
Research and Development(R&D): the company has a five year plan
for R&D and is progressing as follows:
1. An MoU has been signed with IIT kharagpur and IIT madras to
take up projects as per the R&D plan
2. A dedicated Navigation Channel has been finalised in liaison
with Mumbai Port Trust (MbPT)and Central Water and Power
Research Station (CWPRS). Water and Power Consulting
Services is being roped in to conduct the Environmental Impact
Assessment.
3. MoU with National Institute of Design (NID) to study ergonomics
and human factors engineering in the context of Warship
design.
Outsourcing: The company has been focussing on outsourcing a lot of
its ancillary functions to focus prominently on core competency and cut
costs and reduce the time lag.
E-procurement: The company has started using the e procurement
system to minimise the time and efforts required for procurement.

Future Outlook:
The company plans to continue concentrating on meeting the demands
of the Indian Navy in line with the Maritime Capability Perspective Plan
(MCPP).
MDL has been trying to acquire a 16 acre of land of MbPT at Powder
Bunder for capacity enhancement. It is also trying to acquire 12 acres of
land of flotilla workshop of MbPT
The company is planning to appoint a Know-How Provider (KHP) for
technology upgrade and capacity enhancement.
With the upcoming JV and government focussing on indigenous
enhancement of defence sector and Indian Navy looking to augment its
fleet, the prospects of MDL seem strong enough to emerge as a world
class Shipbuilding company.

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L&T Shipbuilding
Introduction
L&T Shipbuilding Private Limited, an ISO 9001: 2008 and ISO 14001: 2004
Company is one of the leading private shipbuilding and offshore fabrication
yards in India. It is one of the main initiatives of the Make in India campaign
launched on 25th Sep 2014. India being the largest importer of arms in the
world aims to limit imports to 30% in the next five years.
L&Ts shipbuilding arm offers total solutions, from building as well as after sales
services. Their offerings span both Defence and commercial vessels. L&T has
already bagged orders worth Rs.3280 crores which are still under execution.
The Kattupalli Shipyard cum Captive Port Complex is a large shipyard
project at Kattupalli village built by L&T Shipbuilding Ltd. The shipyard complex
also includes a Container Port and an Offshore Modular Fabrication Yard. The
Hazira shipyard is a global-scale heavy manufacturing facility. The yard has
the capability to build sophisticated mid-sized ships up to 20,000T deadweight
capacity and 160 meters in length. The shipyard is equipped with all necessary
state of the art equipments. A sloping berth enables controlled side-way
launching of vessels.

Swot Analysis:
Strengths:

The renowned private shipbuilder and one of the main fabrication yards
in India
Indigenously developed Design & Engineering Capability
17

Has received orders of 9 different types of ships and execution has

already started
Modern shipyard infrastructure in both Kattupalli Shipyard cum
Captive Port Complex and Hazira Shipyard
L&T launches latest Inspection Tools
Rich experience in managing large size, complex, multi-site projects and
Global Procurement Chain for efficient sourcing of inputs

Weaknesses:
Unionism: major weakness of the company due to which expected
productivity cannot be achieved
Technical cooperation is still required in the fields of design engineering,
manufacturing/construction technologies, co-production of marine
equipment, life cycle support and export opportunities
Opportunities:
Huge business opportunity of US $ 245 Bn over next 10 years
Huge opportunity to collaborate with pioneers in the field of shipbuilding
Threats

Competition from government companies Mazagon Dock Company

Limited, the major PSU shipbuilder
Competition from private companies Reliance owned PIPAVA, which
entered in a JV with MDL and is currently in the process of building the
worlds largest dry dock which can be leveraged to build aircraft carriers

Problems faced:
Competition from Mazagon Dock Limited
Competition from Reliance owned PIPAVA
Technical cooperation is still required in the fields of design engineering,
manufacturing/construction technologies, co-production of marine
equipment, life cycle support and export opportunities

Steps taken to tackle the problems:

Joint venture with MHI : L&T Shipbuilding has entered into a

comprehensive technical collaboration with Mitsubishi Heavy Industries,
Ltd. Japan, for enhancing technical knowhow in the field of designing and
construction of commercial ships. This will help them to deliver
customized solutions to Maritime Industry at competitive prices. Areas of
cooperation with MHI cover entire project management functions and
Quality Analysis also. This collaboration will enable L&T Shipbuilding to
access a wide range of state-of-the-art design solutions and technical
knowhow, ensuring that their Design Centre delivers best solutions to
ship-owners

18

Future Outlook:

Kattupalli expansion plans to match business demands

Steel Fabrication Shops with an annual capacity of 450,000 T
L&T Shipbuilding has entered into a comprehensive technical
collaboration with Mitsubishi Heavy Industries, Ltd. Japan, for design and
construction of commercial ships. This will enhance the technical
knowhow as well as the knowledge of efficient project management in
the field of shipbuilding and be a global leader

Conclusion
Looking at the prospects of low labor cost coupled with the increasing
involvement of the private players in the domain of shipbuilding industry, India
has the ability to emerge as the leading ship builder depending upon different
government policies that are industry friendly.

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References:
1. http://www.lntshipbuilding.com/media/29822/ltsb_brochure_jan_2013.pdf
2. http://cdn.intechopen.com/pdfs/16925/InTechGlobal_shipbuilding_competition_trends_and_challenges_for_europe.pdf
3. http://www.oecd.org/sti/ind/7%20Cunningham%20-%20Sea
%20Europe.pdf
4. https://www.marinemoney.com/sites/all/themes/marinemoney/forums/HK
13/presentations/0955B%20Martin%20Rowe.pdf
5. http://www.ship-technology.com/features/featuremega-shippers---theworlds-10-biggest-shipping-companies-4518689/
6. http://www.drivespark.com/off-beat/ten-biggest-shipping-companies-inthe-world-008017.html#slide14215
7. http://www.hsl.gov.in/content/7_1_Profile.aspx
8. https://en.wikipedia.org/wiki/List_of_shipbuilders_and_shipyards
9. http://www.mazagondock.gov.in/newsite2010/pdfs/Directors_Report_2013
_14.pdf

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