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The Financial Express

Shipbuilding in Bangladesh: opportunities & challenges


Shipbuilding in Bangladesh: opportunities & challenges

Shipbuilding in Bangladesh can be traced to the medieval era that underwent gradual expansion during the British colonial rule. At the start of the new millennium, Bangladesh already had a basic shipyard industry and availability of skilled workers. According to 'Bangladesh: Diagnostic Trade Integration Study' of the World Bank (2013), export of commercial ships from Bangladesh in modern times started in 2005. The exporters were Ananda Shipyards and Shipways Ltd. of Dhaka. 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 Japan are currently the major global players because of cost cum price competitiveness. Cost-effective human resources, simplified import facilities for raw materials and duty free market accesses to potential markets have encouraged Bangladeshi entrepreneurs to come forward in the ship-building business. As the global demand is going up after a period of stagnation, this is the time for Bangladeshi entrepreneurs to prepare for meeting a surge in global cum local demand for small and medium-sized ships.

STATUS UP TO 2013: Following the footsteps of Ananda, the Chattogram-based Western Shipyard came forward by building on its experience of 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 dollar. 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 fronts. Manufacture of export-oriented classed ships followed standards that were different from domestic shipbuilding. This skills-gap was minimised especially with the help of Bangladeshis who had worked in Singapore and Dubai, through transfer of knowledge. Technical assistance in the shipbuilding process was largely provided by the owners, which included training programs at the yards, hands-on teaching by classification societies, and counselling 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 quality standards (World Bank, 2013).

The question that arises now is how Bangladesh can further build up its capacity, broaden the shipbuilding value chain, and establish shipbuilding industry as important contributor to GDP and exports. Stable and growing domestic demand will undoubtedly help the sector upgrade its productivity and quality. With improved competitiveness in an expanding global market, Bangladesh can certainly increase the volume and quality of its ships in the long run.

CAPACITY OF THE SECTOR: Despite significant improvements in the past decade, shipbuilding industry in Bangladesh is still in a budding stage. Production in most of the Bangladeshi shipyards is still directed mainly towards the domestic market. Around 200 yards (of which 124 were registered) existed in Bangladesh as of 2013, of which only two yards could manufacture export quality vessels of up to 7,000 DWT. In addition, some shipyards had the capacity for producing exportable ships, which included Highspeed Shipbuilding & Engineering, Khan Brothers, Khulna Shipyards, Meghna Shipyard and Narayanganj Shipbuilders. 

Major types of vessels produced in Bangladesh up to 2013 included MPVs, container vessels, bulkers , tankers, passenger ferries and tugs, of whom only MPVs and ferries were exported. The yards that exported ships possessed equipment and shops for computer numerical control (CNC) machining, bending, welding, shot blasting and heavy lifting. However, it was only possible to build ships of up to 15,000 DWT due to space constraints in the shipyards.

The number of skilled and semi-skilled people employed in the shipbuilding industry of Bangladesh is estimated to be about 150,000. Total output was estimated to be about 250,000 gross tons (GT) per year in 2011, of which 185,000 GT were for the local market. In contrast, China employed 400,000 people in 2,000 shipyards and related industries with a production volume of 14 million GT, while Vietnam employed 110,000 people for a production volume of 600,000 GT (WB, 2013). Bangladeshi exporters have relied strongly on the services of foreign experts and local staffs with international experience, especially for transfer of knowledge.

The value chain for forward and backward linkages with shipbuilding industry has much potential for broadening. When produced for the domestic market, the share of value creation besides actual building is up to 25 per cent. But this share is usually only 1 per cent for exported ships. The main reasons why linkage industries have not grown satisfactorily 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.

CURRENT SCENARIO: There has been no export of seagoing vessels from the country during the past two years. However, large industrial groups have now entered the fray and they are pressing into service one ship after another with carrying capacity of between 3 thousand and 5 thousand tons, mainly for the coastal routes. These ships are being used to fetch imported cargo including raw materials from the seaports and then carry those to the respective warehouses of the groups. Consequently, the country's status as a shipbuilding nation is fast on the rise. According to the latest report of UNCTAD, Bangladesh's ranking in the industry has shot up by 13 slots to 14th in the world, and the country has even overtaken India, Singapore, Spain, Romania, Malaysia, Norway and Indonesia. This ranking has been arrived at by collating relevant information on building world-class certified ships. 

The industrial groups that have contributed towards bringing this laurel for Bangladesh are: Meghna Group, City Group, Bashundhara Group, and the Delta Shipyard Limited of TK-Seacom (TK Group and Seacom Group). During 2019-21, the Meghna Shipbuilders and Dockyard of Meghna Group built 22 ships, Khan Brothers Shipbuilding of City Group 36, Bashundhara Steel and Engineering Limited 8, and the Delta Shipyard 7 ships. Besides, the Akij Group is also planning to come forward in the sector in a big way. According to insiders, the number of ships in coastal routes certified by the 12 member societies of International Association of Classification Societies (IACS) is fast rising. Ships have been built under the supervision of renowned entities like Bureau Veritas and IRCLASS. All these ships possess required technical and security features for plying on coastal routes, and over 70 such ships have been built during the past three years for carrying LPG, fuel, edible oil, consumer goods, and containers.

As a consequence of this latest surge in shipbuilding for coastal routes, the import of ships having 3,000 to 5,000 ton capacity is now declining. Five such ships were imported during 2018 at a cost of US$ 16 million. The number went down to merely two at US$ 6.1 million in 2019, and lastly one in 2020. Similarly, import of ships for carrying containers and LPG is also going down. Now, almost all ships meant for the coastal route are being manufactured within the country. According to observers, the local demand for ships per year is now over 100, commensurate with the rising import of raw materials required by factories and manufacturing plants.

According to industry insiders, there are now around 4,000 small-sized lighter ships in the country that have average carrying capacity of about 1,200 tons. The entrepreneurs are therefore tilting towards ships having between 3,000 and 3,500 tons carrying capacity. Considering the depth of navigation channels between Chattogram and Dhaka, ships of such carrying capacity can easily ply on the coastal cum inland routes. Consequently, the smaller ships are expected to be replaced gradually by the larger ones. As all shipbuilding facilities are currently located beside the rivers, experts are calling for setting up special zones beside the sea for facilitating the construction of larger ships.   

KEY CHALLENGES AND OPPORTUNITIES: Reliance on stable domestic demand and improvement of quality cum productivity for export are the two most viable strategies for local shipbuilding industry. Based on the experiences of China and Vietnam as well as other countries, there are also five key success factors that are applicable for the shipbuilding industry in Bangladesh. 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) and provide low-cost skilled workforce cum proper yard management.

There is no comprehensive master-plan for the shipbuilding industry in Bangladesh, which needs to be prepared urgently. 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) rigorously enforce Shipbuilding Industry Development Policy 2020 that was approved by the government in 2021; (c) evaluate shipyards every five years; (d) look after the interests of workers through supervision on safety, work environment, and health issues; (e) take action to prevent environmental pollution; (f) facilitate utility connections including electricity, water and gas; (g) register all shipyards; (h) assist in the establishment of ship design firms and backward/forward linkages. Industry insiders report scarcity and high cost of suitable sites as major obstacles for developing large shipbuilding yards. Linkages with roads, railways and power are also major constraints for existing and potential yards.

Demand for additional tonnages from the growing domestic and coastal trades represent a significant opportunity for the local shipyards to deepen experience with classed vessels and broaden their capacity. Bangladesh's shipbuilding industry is also likely to benefit from enforcement of stringent rules and standards through increased workload and improved capacity aided by higher technical requirements. Expansion of maintenance, repair and renovation services will also create newer opportunities, as these are more stable and labour-intensive businesses compared to building new ships.

 

Dr. Helal Uddin Ahmed is a retired Additional Secretary and former Editor of Bangladesh Quarterly. [email protected]

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