Shipbuilding and repair

The unprovoked invasion of Ukraine by Russia has already impacted shipbuilding, with uncertainties over shipping routes in the region causing some shipping companies to delay long-term investment decisions. One direct impact has been increased demand for LNG vessels globally as Russia exporting more fuel oil to Asia has resulted in Europe importing more gas via LNG carriers, instead of via Russia.

Additionally, orders have been placed on hold for affected Ukrainian locations and sanctions have reduced Russian shipbuilding. Between 2015 and 2021, Russian shipyards saw on average 28.7 new orders, compared to an average of 2.5 new orders between 2022 and 2023. Nevertheless, neither global seaborne trade volumes nor global ship demand, which is driven by global seaborne trade expansion, have, so far, been significantly affected by the war in Ukraine. While the unprovoked invasion of Ukraine by Russia has altered Europe’s security approach, an impact on naval shipbuilding is likely to be delayed by a number of years, due to long lead-in times and programme durations. Certain ship repair sectors are also being affected by the Russian invasion of Ukraine, as sanctions on Russia-owned assets include impounding super yachts.

The increased use of the Danube as an alternative route for Ukrainian exports may increase smaller river vessel construction. By contrast, the Gaza conflict and Houthi attacks on Red Sea shipping may continue to disrupt shipping, leading to changes in vessel demand due to longer sea journeys.

Very recently, smart shipping has started to use digitalisation to realise optimisation and leverage value from data. Autonomous ships sit at the more advanced end of the smart ship spectrum and are defined by the IMO as “a ship which, to a varying degree, can operate independent of human interaction”. Estimates of the global autonomous shipping market size vary from $4-10 billion for 2022-2023, with predicted compound annual growth rates of about 10% and values of $8-12 billion by the end of the decade. Europe is seen as a major player in this market, investing in sustainable maritime operations and R&D.

Early use-cases for Maritime Autonomous Surface Ships (MASS) technology centred around the “dull, dirty or dangerous” jobs, such as offshore data collection and mine counter-measures, with early adopters in the maritime defence, marine research and survey sectors. As the technology has matured and capabilities have been proven, there has been observed both increased adoption within these sectors and increasing commercial applications in other sectors, such as maritime logistics and offshore renewables, driven by the environmental, safety and efficiency improvements delivered by this new technology.

Regulatory restrictions are currently limiting MASS size to less than 24 metres in length, reducing the presence in the market of the large shipbuilders and shipping companies. The market is broadly comprised of a few large defence providers and a greater number of smaller robotics or specialist scientific/ survey companies manufacturing and operating MASS.

In the EU, research and development funding is driving innovation and sustainability in the autonomous ship market, with several major EU projects, some funded under Horizon 2020, either completed or currently in delivery. Projects have progressed from concept/feasibility studies (e.g. €2.9 million project MUNIN completed in 2016) to on-water demonstration project such as:

• €20m funded AUTOSHIP project to build and operate 2 different autonomous vessel demonstrators for Short Sea Shipping and Inland Water Ways scenarios.
• €65m funded EUROGARD project to build a demonstrator autonomous vessel for coastal naval/ defence operations. 
• €14m funded SEAMLESS project to develop and adapt key enabling technologies for a fully automated freight feeder service for short sea shipping and inland waterways.

In addition, under the umbrella of the EMFAF funds a recent call for proposal has been launched, with a total budget available of €2.2 million, for a demonstrator fishing vessel that will be retrofitted with alternative propulsion technologies and other solutions to improve energy performance, cut emissions and reduce underwater noise.
 

 The focus on sustainability and circularity stresses the importance of ship recycling. This activity registered a peak in 2017 in the EU, with 40 ships recycled, equalling a total of 21,000 light displacement tonnes (LDT); however, that amount reduced to 4,500 LDT in 2019. A total of 211 ships were recycled in EU facilities between 2014 and 2019, mainly in Denmark and Belgium, but this represents less than 1% of the EU controlled fleet. However, outside the EU, many large ships are still dismantled in ship recycling facilities which operate under poor environmental standards and safety conditions.

The IMO’s ‘Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships’ was adopted in 2009 and is aimed at ensuring that ships, when being recycled after reaching the end of their operational lives, do not pose any unnecessary risk to human health and safety or to the environment. The Convention was finally ratified in 2023 and will enter into force on 26 June 2025. Since the Hong Kong Convention’s adoption, IMO's Marine Environment Protection Committee (MEPC) has developed and adopted a range of guidelines to assist States in its implementation, most recently 2023’s Guidelines for developing inventories of hazardous materials. 

The EU was an early signatory³and the EU’s Ship Recycling Regulation (SRR) came into force in 2020. The introduction of the SRR speeds up the ratification of the Hong Kong convention, within the EU, whilst also implementing additional safety and environmental requirements. Currently, ship recycling as a percentage of the global fleet remains low due to high new build costs and lack of ship recycling availability.  

The SRR provides an approved list of ship recycling facilities that comply with stricter ship recycling requirements, which EU flagged vessels are to utilise when being scrapped. There are 44 EU shipyards listed, but few countries outside the EU (mainly Turkey, the UK and India) have approved yards for recycling EU ships. Global shipyard capacity has decreased dramatically since the global financial crisis. Increasing shipbuilding capacity is crucial to ensure that shipping meets global demand and its sustainability goals, which includes the recycling of ships in line with the IMO’s Hong Kong Convention. 

A ‘superyacht’ is defined as being a large, luxurious, recreational vessel, but the length threshold differs between sources: e.g. any yacht over 20 metres to only vessels over 30 metres in length being considered a ‘superyacht’. The superyachts market influences the overall sector.  

Almost 50% of the global superyacht fleet lies within a range between 24 metres and 30 metres, while the average length of the superyacht fleet is increasing. Very large vessel (more than 70 metres) new builds have increased market share from 3% between 2000 to 2009 to 7.5% between 2010 and 2019.

The number of superyachts over 30 metres increased from 4,136 in 2010 to 5,559 December 2019. The number of superyachts is predicted to increase from 5,718 superyachts in 2020 to about 7,189 to 7,701 superyachts by 2030⁴. Sales are relatively immune to recessions, being reliant on a growing global population of high-net-worth individuals.  

EU companies dominate both construction and refit with Italy, the Netherlands, the UK, Germany, Denmark and France being the top countries involved in the industry. In the construction sector, Italy dominates with the most companies (283) and the highest total revenue (€2.6 billion). Between 2010 and 2019 Italy produced 38% of all new built superyachts with most of this coming from four Italian shipyards: Azimut Benetti Group, Ferretti Group, Palumbo Group and Sanlorenzo. The European refit sector is dominated by the Netherlands with 22% of all global superyacht refits done there between 2014 and 2018. France is next with a market share of 12%. 

Construction (new and refit) has the largest contribution to the economy (2021 saw €13.6 billion in revenue), but yacht services also provide a significant economic contribution (just over €1 billion in commission revenue in 2021) through general yacht management, brokerage services – for chartering as well as for sale and purchase – and other ancillary services. This service sector is spread more broadly throughout the EU, associated with large marinas. 

Despite its focus on luxury, the superyacht sector is not exempt from international regulations such as the IMO’s SulphurCap 2020, and the sector is increasingly focused on green technology in new builds and refitting. Vripack is currently building a fossil fuel free 69 metres superyacht as part of an industry sustainability initiative, Project Zero. EU specialist refitters, such as the Dutch company Royal Huisman, are assisting owners in complying with regulation and reducing emissions with the installation of hybrid propulsion systems.  

The major driver for the global industry is represented by seaborne trade. Although the first part of 2020 saw reduced trade volumes, the global shipbuilding industry operated without major impediments. However, the business model of the EU shipbuilding industry, focused mainly on the manufacture of passenger ships, such as cruise ships, ferries, and yachts, and led to severe setbacks during the COVID-19 pandemic. According to the Cruise Lines International Association (CLIA), the passenger volume in Europe declined overall by 82.5% in 2020, and in some regions, the passenger volume completely halted (i.e. Baltics). As a consequence, cruise lines recorded heavy losses due to inactivity and were forced to cancel orders for new ships.

The growth of the global economy is an important driver for the industry. General concerns over the global economic outlook are reflected over the new ship demand. According to the OECD’s forecast, 336 million GT are expected to be built over the period 2021-2030, 60% of which will be bulkers, and 20% tankers, with the remaining being container ships and general cargos. This can be partially explained by the war in Ukraine, which has affected the price of materials needed to build ships. In particular, steel prices in Europe were almost four times higher in April 2022 than in June 2020. This led to an increased production cost that affected the industry.

One major consideration for the industry is the green transition. Environmental regulations play a fundamental role in the evolution of this industry. To reduce the carbon intensity of all ships by 40% by 2030 compared to 2008 baselines, the Marine Environment Protection Committee set several directives that directly affect the shipbuilding and repair sector.

Under the MARPOL Annex VI treaty, in addition to the Energy Efficiency Design Index (EEDI) that regulates efficient shipbuilding, two mandatory measures have been outlined. First, the Energy Efficiency Existing Ship Index (EEXI), for ships above 400 GT, EEXI indicates the energy efficiency compared to a baseline. The calculated attained index must be below the required EEXI to guarantee minimum energy efficiency standards. Furthermore, the Carbon Intensity Indicator (CII), for ships above 5,000 GT determines the annual reduction factor needed to continuously improve a ship's operational carbon intensity within a specific rating level. Both measures became mandatory on the 1 January 2023. The International Maritime Organization’s (IMO) Marine Environment Protection Committee (MPEC) has the duty to review the effectiveness of the implementation of the EEXI and of the CII to develop further amendments where necessary by 1 January 2026, at the latest.

To reach a low-carbon shipping industry, the IMO highlights the importance of low- and zero-carbon fuels. The push for alternative fuels in the maritime sector leads to an increase in the production of marine equipment. Most of the orders in the EU include battery (combination of pure electric, plug-in and hybrid) and LNG fuel capable engine.  However, a recent increased focus on alternative fuels has contributed to decarbonisation such, as methanol, hydrogen, and ammonia.

The shipbuilding industry impacts various policy areas, mainly research and innovation, intellectual property, maritime clusters, safety, and the environment. In particular, it provides the assets, capabilities, technologies, and know-how for several Blue Economy activities such as the Primary sector (capture fisheries and offshore aquaculture), Maritime transport, Non- living resources, Marine renewable energy, Coastal tourism (transport), and Maritime defence and security. The EU Shipbuilding and equipment sectors are driving new opportunities, especially when working alongside growing and emerging sectors. These include: assistance vessels and structures for offshore wind farms, and other ocean technologies, and deep-sea exploration and exploitation.