Differences Between Military and Commercial Shipbuilding: Implications for the United Kingdom’s Ministry of Defence
Jun 15, 2005
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Any attempt by the United Kingdom to re-enter the commercial shipbuilding market or enter the military ship export market would face daunting challenges, including
Design breakthroughs by the United Kingdom could help its competitive position, but such advances require risky investments.
The United Kingdom's Ministry of Defence (MOD) now buys most of the ships built by the country's shipyards. A shipbuilding industry relying almost entirely on a single customer will have limited motivation to improve its efficiency or advance the state of the art. The MOD thus asked the RAND Corporation to shed light on the United Kingdom's prospects for success in the commercial or military export market. The RAND analysis was based on literature reviews, a survey of shipbuilders, and interviews with personnel at the responding shipyards.
If the UK commercial market is to expand, the country's largely military shipbuilding industrial base will have to begin building commercial ships. The construction of most commercial ships, however, differs dramatically from that of warships:
The United Kingdom would face strong competitors in attempting to re-enter the commercial shipbuilding market (see Figure 1). Japan and South Korea dominate the market for ships of low and moderate complexity—mostly cargo ships and tankers. EU countries other than the United Kingdom dominate the market for more-complex ships such as passenger vessels. A newcomer would face formidable impediments to securing a meaningful market niche in such an environment. UK shipyards attempting to compete in the commercial market would also have to resolve the workforce, process, and facility issues discussed above. Finally, the pound has recently been strong against the dollar, which works against the United Kingdom's export interests. We thus find prospects for re-entry of UK shipyards into the commercial market to be daunting.
The military export market is small in value compared with the commercial market. It nonetheless represents a tempting target if the objective is to level the load over domestic military production lulls. Here again, UK shipbuilders face strong competitors. Germany and France together have more than 60 percent of the market (see Figure 2). The United Kingdom certainly has a stronger industrial base to support military sales than it does in the commercial arena, but the match between most UK military ship products and global demand is not close. Buyers are largely looking for modestly priced frigates and small conventionally powered submarines. UK warships are, in general, too sophisticated and expensive to interest potential importers. Furthermore, export contracts often require that most ships in an order be built in the importing country, thus limiting the benefit for the exporter's construction workforce.
As mentioned above, should the United Kingdom attempt to re-enter the commercial market, shipyards currently building military ships would have to diversify into commercial production. While some yards do have experience with naval auxiliaries or recent commercial projects, the historical trend has been more towards specialisation than integration of commercial and military production. Most successful shipbuilders have found it difficult to build both military and commercial ships, of any degree of complexity, within the same operation.
While prospects for broadening UK shipyards' customer base would appear to be poor, the shipbuilding industry is a volatile one, and events could always break unexpectedly in the United Kingdom's favour. Taking advantage of such opportunities requires some preparation, such as the development of less-expensive warship designs and generation-skipping commercial designs or dramatic technological advances in systems and materials.
Of course, development of new designs and technologies would require investment on the part of shipbuilders and equipment suppliers and potentially on the part of government, if consistent with EU rules. These investments would be risky, because the probabilities of payoff would not be high, but spillover benefits might accrue to domestic military shipbuilding and to other UK industries.
This research brief describes work done for RAND Europe and the RAND National Security Research Division.
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