Russian shipbuilding industry gets a boost with new action plan
Russia’s shipbuilding industry has experienced decay for many years due to a lack of investment and the loss of a considerable number of facilities following the end of the Soviet Union. To illustrate this problem, in 1990 Russia lost most of its shipbuilding and repair facilities in the Black Sea area because they were located on Ukrainian territory. Currently, most of Russia’s ship yards are either in Russia’s northern regions such as Murmansk or in the Far East around Vladivostok. As one can imagine, sending ships from the Black Sea to Vladivostok for repair is a lengthy process that costs a lot of money.
Putting a new plan into action in January 2013, Deputy Prime Minister Dmitry Rogozin announced that the government would build a series of new ship yards around the Black Sea to help solve the current lack of facilities in the area–but this is just one chapter in the overhaul that is gradually taking place in Russia’s shipping sector.
In addressing the modernization of Russia’s shipping industry, the government found that a lot of capital was being invested into foreign vessel construction projects and that domestic demand for Russian-made ships was low. In 2006, 95 percent of the total tonnage of civil vessels built for Russia in the previous decade came from suppliers abroad. Deputy Prime Minister Dmitry Rogozin said in June 2013: “It’s an unacceptable situation when we had to move huge amounts of money out of the country in order to build ships for civilian contracts at ship yards in France, Germany, Finland, Korea and so on.”
But revitalizing the country’s industry would have to start at home by stimulating domestic production. Russian ship constructors will have to start by getting their order books filled with orders from Russia. In May 2013 President Putin said that, “Priority should be given to domestic producers…These orders can become a good stimulus for the development of innovation and creation of high-paying jobs, as well as for launching production modernization.”
A group called the United Shipbuilding Corporation (USC) made up of some of Russia’s largest companies (Rosneft, Gazprom, Novatek and Sovcomflot) with nine design bureaus and 39 ship yards, came together to hash out a prospective order book to map Russia’s ship demand until 2030. The group projected that there could be a demand for up to 512 new ships for a total of €144.5 billion.
Seizing on this potential, in August 2013 President Putin made a state visit to Vladivostok, one of Russia’s main production regions for ships. This visit was followed by a conference in which he addressed several issues regarding the development of civilian shipbuilding in Russia. The conference followed up on the findings of the USC and also highlighted some of the problems and solutions that needed to be addressed in order to overcome the problems that plague the industry.
First, the government will lay a foundation by seeking to improve the development of new technology. This is expected to take place by upgrading the country’s research institute facilities, design bureaus and training programs for engineers.
Second, shipbuilders will need to develop partnerships with manufacturers outside the country in order to help expand their product range and become more competitive in the international marketplace. Currently Russian shipbuilders only compete successfully in niche markets such as the supply of drilling platforms, geological exploration vessels and supply ships. In areas such as container shipping and gas carrier design, Russia lacks competitiveness and could hence benefit from foreign experience and technology alliances. Deputy Prime Minister Rogozin has said that Russia is considering inviting a foreign strategic partner into the county’s shipbuilding industry and that under such an agreement Russia will seek the transfer of technology or financial investments to help widen its product range and modernize its ship yards.
Third, the industry should integrate modern corporate methods of project management in order to increase productivity and improve cost management and auditing. President Putin has said that USC has substantial financial, production and intellectual resources, but noted that it has nevertheless failed to deliver all state orders on military vessels resulting in delays affecting 30 percent of total orders. To mitigate such risks, the government has asked that companies pay more attention to contractual and technological discipline to meet deadlines and develop innovation.
The government has given the USC until the 15 October 2013 to submit its development strategy for the future of Russia’s ship building industry. The task of reforming the sector will not be easy and will require some fundamental changes.