Since 1998 the Norwegian shipbuilding industry has witnessed dramatic reductions in orders and significant losses of income. The industry experienced a similar crisis in the 1970s and managed to survive increasing international competition and loss of market share by readjusting its production. We review the situation in early 2000.
Since 1998, the Norwegian shipbuilding industry has witnessed dramatic reductions in orders and Norwegian shipyards have experienced significant losses of income. The slump followed several successive years of growth, which reached a peak in 1997. As a result of this turnaround, wide-ranging processes of reorganisation have taken place within the industry, and many employees have been laid off or made redundant.
The slump is caused by many factors. There has been a general reduction in the demand for new ships, especially in the domestic market but also in the international market. Furthermore, like many other European shipbuilding nations, Norwegian yards are being put under pressure by increased competition from Asia. The recent economic downturn witnessed in the offshore sector, with a dramatic fall in investments, also contributes to the problems of the shipbuilding industry (NO9909149F). A final reason given for the recent turnaround is the general and unilateral reduction in shipbuilding subsidies made by the Norwegian government on 1 January 1998, a decision which was later reversed.
Shipbuilding is a long-established industry in Norway, and an important branch of Norwegian maritime activity. In the 1970s and 1980s the Norwegian shipbuilding industry managed to survive increasing international competition and loss of market share by readjusting production towards the national offshore industry and ship equipment production. The production of offshore- and oil-related ships and equipment has been vital for the industry's survival, and as such it still relies heavily on a relatively large domestic market. On the other hand, since the early 1980s almost three-quarters of all domestic production of ships (rather than offshore-related ships and equipment) has been commissioned by foreign parties. At the same time, the industry's international market share has steadily dropped since the 1960s.
The shipbuilding industry in Norway consists of a few medium to large (in an international context) and many small companies, and between them there is a large degree of domestic competition. There is no state ownership. The combination of building new ships and reconditioning old ones is the most common way of organising production, and although many shipyards provide highly specialised production, some provide ships and ship-related products for the shipping as well as the offshore sector. However, only a handful of large companies are able to sustain such a comprehensive production. For the large majority of shipyards, specialisation has been the most important factor in survival. As mentioned above, many yards converted production in the 1970s and 1980s to the offshore sector industries. Within the shipbuilding industry proper, the production of chemical tankers is one area in which specialisation has brought success to many Norwegian shipyards. Specialisation has taken place in other areas as well, such as in the production of research ships and high-speed aluminium ferries (catamarans). In addition, the production of fishing vessels has also been important to Norwegian shipbuilding.
The Norwegian shipbuilding industry is marked by relatively high wage rates and costly production, which many commentators have regarded as an impediment to growth and to the industry's international competitiveness. On the other hand, there is a close relationship between Norwegian maritime research and development institutions, ship-owners and shipbuilding companies, in a deliberate attempt to be at the forefront with regard to new developments and innovation. As such, technological innovation and professionalism have been seen as the Norwegian shipbuilding industry's main competitive advantage, and the main reason why it has been so adaptable and willing to readjust production in the face of increasing international competition.
A significant feature of the shipbuilding industry compared with other manufacturing industries in Norway is its reliance on governmental subsidies and national protectionism. In 1999, support payments to the shipbuilding industry amounted to approximately NOK 2 billion, with a sharp decrease in 2000. The ceiling for contract-related operated support under the European Economic Area agreement is 9%. The equivalent figure in Norway was reduced to 7% in 1998, although reversed to 9% in 1999. The ship equipment industry, however, does not receive direct financial support from the state, although it benefits indirectly from the subsidies given to the shipbuilding industry.
The shipbuilding crisis in the 1970s ran parallel with the expansion in Norwegian oil and offshore activity, and many large shipyards managed to convert production towards this new industry, helped by governmental subsidies and a strategic policy. Figures made public by the Federation of Norwegian Manufacturing Industries (Teknologibedriftenes Landsforbund, TBL) show that in 1997 approximately 50% of orders to Norwegian yards were commissioned by the offshore sector. Furthermore, much of the production in the Norwegian manufacturing industry has been geared towards offshore-related industrial activity, and as such reduced investments and low industrial activity in the offshore sector will have serious effects on Norwegian industrial activity in general.
The number of employees in the maritime industries, excluding among others employees involved in oil exploration, is approximately 35,000 people, according to Statistics Norway in its estimates for 1998. The largest group is employees involved in the production of oil-rigs. In 1996, there were approximately 12,000 employees directly involved in the building and repair of ships. Since 1998, the shipbuilding industry (including the offshore industry) has witnessed serious difficulties due to falling orders, which has led to increasing numbers of redundancies and lay-offs. In 1999, approximately 2,000 employees were made redundant or laid off. The Directorate of Labour expects further reductions in employment during 2000.
The most important trade union organisations in the Norwegian shipbuilding industry are the Norwegian United Federation of Trade Unions (Fellesforbundet), which is a member union of the Norwegian Confederation of Trade Unions (Landsorganisasjonen i Norge, LO) and the newly independent (NO9901111N) Norwegian Society of Engineers (Norges Ingeniørorganisasjon, NITO). On the employers' side, the most important actor is the Federation of Norwegian Manufacturing Industries (Teknologibedriftenes Landsforbund, TBL), which is a member association of the Confederation of Norwegian Business and Industry (Næringslivets Hovedorganisasjon, NHO). Union density among employees in the manufacturing industries in Norway is approximately 60%, and there are reasons to believe that the density is higher in those parts of the manufacturing industry producing ships, and ship- and offshore-related products. These companies are relatively large in a Norwegian context.
This set of social partner organisations is an important and influential force in the Norwegian industrial relations system. As an industry highly vulnerable to international economic cycles, and subject to significant international competition, shipbuilding is among those industries which are leading the way in wage formation and collective bargaining. This makes shipbuilding, and other industries in the metalworking sector, influential actors in industrial relations activity in Norway. Wages and working conditions in the shipbuilding industry are regulated by the collective agreement for manufacturing industry, which provides for local wage negotiations at company level.
The vulnerability of the shipbuilding industry in Norway has also generated a common interest among the social partners, and a consensus about priorities and policies within this sector, and they often work together to influence governments and generally improve the situation for Norwegian shipbuilding. Recently, the social partners have worked jointly to encourage the Norwegian authorities to improve the operational and economic framework within which the industry has to operate. In November 1999 the three organisations sent a joint letter to the Minister of Trade and Industry recommending measures to improve the present crisis within the industry. In the letter, the organisations also pledged their support for the demand put forward by the European Metalworkers' Federation (EMF) and the Committee of European Shipbuilders' Associations (CESA) that the EU initiate concrete measures to safeguard European shipbuilding (EU9911208N).
The crisis in the Norwegian shipbuilding industry has become more evident in late 1999 and early 2000, and in its state Budget proposal for 2000 the government has proposed several measures to deal with the problem. An important demand from the industry has been the advancement of governmental acquisitions of ships, and as such the government has promised Norwegian shipyards contracts to build new ferries, coastguard vessels and a research ship. Partial subsidy payments to Norwegian shipyards will be brought forward, according to the Budget, which means that 50% of funds will be allocated prior to the completion of ships. Furthermore, an additional NOK 40 million is allocated to compensate for increased employment taxes. The government also met the demand for a crisis package to deal with the problems in the offshore industry, which will have a significant impact on the general situation in manufacturing industry. There have also been calls for more funds for research and development, which is a possibility opened up by EU Council Regulation (EC) No. 1540/98 of 29 June 1998 establishing new rules on aid to shipbuilding. No promises have been made in this regard.
In March 1999, the government brought the national subsidy rates back up to the level applied by the EU, which means 9% for large ships above the value of EUR 10 million and 4.5% for small ships below this value. This is in accordance with the demands put forward by the social partners in a joint letter in early February 1999 to the Minister of Trade and Industry, in which the social partners wanted to see the government following up the abovementioned EU Council Regulation.
Many commentators believe that the offshore boom has gone for good, but this is not to say that there is no oil left on the Norwegian continental shelf. Given the right incentives, further oil-related investments should be expected, although they will never reach the levels witnessed only a few years ago. It follows that many shipyards must in the near future readjust their productions to other markets, as they did during the 1970s and 1980s. (Haavard Lismoen, FAFO Institute for Applied Social Science)