Exporting Bangladesh-made ships: Challenges and prospects

Shipbuilding industry in Bangladesh can be traced back to the medieval era. It underwent gradual expansion during the British colonial rule. At the start of the new millennium, Bangladesh already had a basic shipyard industry as well as availability of skilled workers. According to 'Bangladesh: Diagnostic Trade Integration Study' of the World Bank (2013), the export of commercial ships from Bangladesh in modern times started in 2005. The exporter was Ananda Shipyard and Shipways Ltd. of Dhaka, which is currently the second-biggest shipyard of the country.
Shipbuilding is primarily a capital-intensive industry with labour playing an important role due to dependence on skilled and semi-skilled manpower. China, the Republic of Korea and Vietnam are currently the major global players due to their cost-cum-price competitiveness. Cost-effective human resources, simplified import facilities for raw materials and duty-free market accesses to potential countries have encouraged Bangladeshi entrepreneurs to come forward in the shipbuilding and export business. As the global demand for ships is likely to go up from 2015 after a period of stagnation, this is the time for Bangladeshi entrepreneurs to take preparations for meeting a surge in global demand for small and medium-size ships.
CURRENT SCENARIO: Following the footsteps of Ananda, the Chittagong-based Western Shipyard started manufacturing ships by building on its experience in ship repair and maintenance of classed vessels. It entered the shipbuilding industry in 2008 and the first orders from Europe arrived very soon. More than 20 vessels were delivered by Ananda and Western Shipyards between 2008 and 2012 with an export value of over 100 million US dollars. Although Bangladeshi firms demonstrated the capacity to build different categories of vessels, only multipurpose vessels (MPV) and ferries were exported during the period (World Bank, 2013).
The steep upturn of the shipping cycle with increasing freight demand and subsequent increase in orders at shipyards across the world during 2008-09 stretched the capacity of Bangladeshi yards both on the commercial and technical sides. Manufacture of export-oriented classed ships adhered to standards which are different from domestic shipbuilding. This skill-gap was minimised especially through transfer of knowledge from Bangladeshis who had worked in Singapore and Dubai. Technical assistance in the shipbuilding process was largely provided by the owners, which included training programmes at the yards, hands-on teaching by classification societies and advices from overseas experts. Previous experience with classed vessels through repair and maintenance jobs was the basic enabler, as shipyards were already familiar with many regulations and standards for quality (World Bank, 2013).
The question that arises now is how Bangladesh can further build up its capacity, broaden the shipbuilding value chain, and establish the shipbuilding industry as an important contributor to gross domestic product (GDP) and exports. Stable and growing domestic demand would undoubtedly help the sector upgrade its productivity and quality. With improved competitiveness in an expanding global market, Bangladesh can hope to increase the volume and quality of its ships in the long run.
CAPABILITIES OF LOCAL SHIPBUILDING INDUSTRY: Despite significant improvements in the past decade, shipbuilding industry in Bangladesh is still in its infancy. Production in most Bangladeshi shipyards is still directed towards the domestic market. Total output is estimated to be about 250,000 gross tons (GT) per year, of which 185,000 GT are for the local market (Department of Shipping, 2011). Around 200 yards (of which 124 are registered) exist in Bangladesh (World Bank, 2013), of whom only two yards could manufacture export quality vessels of up to 7,000 dwt (Western and Ananda). The other shipyards which have the capacity for producing exportable ships include Highspeed Shipbuilding & Engineering, Khan Brothers, Khulna Shipyard, Meghna Shipyard and Narayanganj Shipbuilders. The rest lack the infrastructure, reputation and experience to enter the export market.
Major types of vessels produced in Bangladesh include MPVs, container vessels, bulk-carriers, tankers, passenger ferries and tugs, of whom only MPVs and ferries have been exported till now. The yards which export ships possess equipment and shops for computer numerical control (CNC) machining, bending, welding, shot blasting and heavy lifting. However, building ships of up to only 15,000 dwt is possible now due to the current space constraints in the shipyards (World Bank, 2013).
The number of skilled and semi-skilled people employed in the shipbuilding industry of Bangladesh is estimated to be between 100,000 and 150,000. In contrast, China employed 400,000 people in 2,000 shipyards and related industries with a production volume of 14 million GT in 2009, while Vietnam employed 110,000 people for a production volume of 600,000 GT in 2010. Bangladeshi exporters have relied strongly on the services of foreign experts and local staff with international experience, especially transfer of knowledge.
The value chain for forward and backward linkages with the local shipbuilding industry has much potential for broadening. When produced for the domestic market, the share of value creation besides actual building goes up to 25 per cent. But this share is only 1.0 per cent for exported ships. The main reasons why linkage industries have not grown are comparatively small size of the shipbuilding market and dearth of skills and technology. There are, however, potential areas where linkage industries can be developed with the help of foreign manufacturers (World Bank, 2013).
KEY CHALLENGES FACING SHIPBUILDING INDUSTRY: Relying on stable domestic demand while improving quality and productivity for exports is the most viable strategy for the shipbuilding industry of Bangladesh. There are five key success factors based on the experiences of China and Vietnam as well as other countries, which are applicable to the shipbuilding industry here (World Bank, 2013). These are: (1) Grow the industry during periods of increasing demand; (2) Ensure government support; (3) Attract FDI and foster joint ventures; (4) Broaden the domestic supply industry; (5) Provide a low-cost skilled workforce and proper yard management.
There exists no comprehensive master plan for the shipbuilding industry in Bangladesh, which needs to be prepared on an urgent basis. Besides, the following measures by the government can lead to improved infrastructure and quality: (a) regulate the number and quality of new shipyards through issuance of 'No Objection Certificates'; (b) formulate and implement shipbuilding policies; (c) evaluate shipyards every five years; (d) look after the interests of workers with supervision on safety, work environment and health issues; (e) take action to prevent environmental pollution; (f) facilitate connections of electricity, water and gas; (g) register all shipyards; (h) assist in the establishment of ship design firms and backward/ forward linkages.
The biggest challenge to the industry at the moment is probably intermediate financing. Shipyards arrange finances at very high interest rates of 15 per cent on an average. Besides, they bear the cost for import L/Cs and bank guarantees. The administrative and managerial efforts for these are significant for both suppliers and yards and affect both export-oriented and domestic segments of shipbuilding. It drives up costs significantly for domestic vessels and reduces the comparative advantage generated by low labour costs (World Bank, 2013). Industry insiders also report scarcity and high cost of suitable sites as major obstacles to developing large shipbuilding yards. Inadequate linkages with roads, railways and power are also major constraints for existing and potential shipyard sites.
FUTURE POTENTIAL AND OPPORTUNITIES: Demand for additional tonnages from the growing domestic and coastal trades represents an opportunity for the shipyards to deepen their experience with classed vessels and broaden their capacity. Bangladesh shipbuilding industry can also benefit from enforcement of stronger rules and standards and through an increase in workload and improved capacity fostered by higher technical inputs. Expansion of maintenance and repair services will create new opportunities as these are more stable and labour-intensive businesses compared to building new ships. There is also a general opportunity to benefit from the rising traffic comprising both larger and smaller vessels plying across Bangladesh waters; maintenance and repair facilities for larger vessels also have the potential for rapid expansion.

The writer is a senior civil servant and former editor of Bangladesh Quarterly.
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