FOR those that pray at the altar of the free market, the shipbuilding industry might seem a funny old business. It is rarely able to function without some form of state intervention, sometimes involving vast sums of taxpayers’ money.  

Once the world’s leading shipbuilding nation, the UK industry burned through billions in government cash from the early 1960s to the late 1980s. Rather than upgrading ageing shipbuilding facilities to compete with Asian shipyards, much of that money was spent covering losses on contracts signed at below breakeven prices, settling labour disputes, and paying penalties for late deliveries.

Perhaps the government of the day was right to get out. The sector simply could not compete in a global industry, where low cost was, and remains, key. Thus British merchant shipbuilding is no more.

European governments and the US soon followed in scaling back the largesse. It was commonplace to offer subsidies of 50% of the newbuilding contract price to cling to orders that would otherwise have gone to Japanese or South Korean shipyards.

There were numerous instances in the 1970s and the 1980s where local politicians representing shipbuilding towns or cities intervened to encourage the ordering of ships for which there was no market demand, simply to keep shipyards and their employees in work, especially during election years. The distortion of shipping markets was assured.

Fast-forward to this week. The South Korean government has promised a $10.8bn “financing boost”, with local banks to cover refund guarantees (RGs) to its shipbuilders.

RGs cover shipowners for losses incurred should a shipyard go out of business or a vessel be delivered late. Given South Korean shipyards’ reputation for delivering vessels on time, such a gesture may look low-risk.

Nevertheless, most South Korean shipbuilders have barely made any profits in the past decade, with some severely loss-making, and are said to be the recipients of billions of Won of government bailouts.         

In November, the government pledged $547m for a five-year ‘K-Shipbuilding Strategy for Next-Generation Market Dominance’, aimed at stealing a march on China in the technology race to decarbonise the shipping industry.

Meanwhile in the US, a former merchant shipbuilding powerhouse, steel unions and politicians are baying for a probe into China’s “unfair” subsidy policies (albeit just before a national election).

At the same time, the European Union is being lobbied by the Community of the European Shipbuilders Association (CESA) to again allow state support for its industry.

European shipowners can benefit from subsidies for alternative-fuel vessels. CESA has highlighted that most shipowners benefiting from these so-called ‘green’ subsidies have ordered their ships in China or South Korea.  

While recent concerns about China’s dominance of global merchant shipbuilding might have some foundation, it is not clear how much subsidies are responsible for this dominance. Industry observers point to China’s dominance in steelmaking and its lower labour costs, which let it offer lower prices than its rivals.          

Nevertheless, the Chinese and South Korean governments recognise the importance of their respective shipbuilding industries in providing well-paid employment for their citizens, a steady market for their national steel and banking sectors and support for ancillary industries, which employ an army of workers.

Their continued support for shipbuilding comes during a period of renewed demand for new merchant vessels, many of which will use new technologies developed in Europe. Not surprisingly, most of these ships are being ordered in China and South Korea.        

Meanwhile, politicians in Europe and the US are waking up to the fact that their predecessors abandoned their own shipbuilding industries to the free market, in a sector that has seldom been able to operate as such.