Sea change

The fortunes of the shipbuilding industry have
By : Jeffrey Sparshott

    Heavy weather: But many are optimistic about the future of Poland’s shipyards.

   A U.S. company that ships timber and paper products from Seattle and Vancouver to ports in Japan and Korea might seem an unlikely customer for Poland’s shipyards. The Baltic shipbuilders are geographically distant from the American’s home office and have a small output compared to Korea and Japan, No. 1 and 2 builders in the world.

   But Westwood Shipping has seven ships on order from Stocznia Gdynia, Poland’s largest shipyard, due for delivery in 2002.

   “Gdynia offered the best value in terms of cost and willingness to collaborate on a new design,” said Frank Mendizabal, director of media relations for Weyerhaeuser Co., Westwood’s Seattle-based parent company. “(The shipyard is) more innovative. Design elements will allow the ships to sail faster, ballast better while underway and provide improved protection for moisture-sensitive cargo like paper products.”

   The seven new 199 meter-long ships are one answer to the increasingly competitive world market faced by shipyards that have undergone a massive transformation since 1989. That historic year saw the culmination of the Solidarity trade union’s push to end communist rule in Poland. But the movement, born in Gdańsk’s shipyards, also sent the industry tumbling, forcing thousands of layoffs and bringing shipyards up to or over the brink of bankruptcy.

   “When the political transformation came, the government stopped meeting its obligations and all Polish shipyards started a period of rapid economic decline and were threatened with bankruptcy because they had debts to foreigners, domestic banks, suppliers and employees,” said Kazimierz Schreiber, leader of the Free Trade Union of Employees of the Maritime Economy, a rival to the Solidarity union.

   The industry’s biggest customer – the Soviet Union – collapsed, leaving ships unpaid for and unwanted, and suddenly Poland had to face stronger competition on the world market just as government support declined. In the first five years after the revolution, the number of workers in Poland’s maritime economy dropped by about 40%, according to the Central Statistical Office (GUS). All the major shipyards started losing money and by 1996 Stocznia Gdańska – the historic shipyard – was bankrupt.

   Rough waters

   Today, the picture for the industry is much brighter, but the transition has not been easy.

   Stocznia Szczecińska was the first of the big shipyards to start the restructuring process and Stocznia Gdańska Remontowa, which repairs and refits ships, rounded out the process in March of this year when the treasury sold an 85% stake to private investors. In between, the industry underwent its own revolution.

   Stocznia Szczecińska became a joint stock company in 1991 and reached a debt forgiveness agreement with creditors in 1992. By 1999, the state treasury, originally the sole owner, had only about 6% of the votes at the company’s general shareholders meeting.

   “Many textbooks say how companies can restructure like this,” said Arkadiusz Goj, managing director of Stocznia Szczecińska, referring to the transformation from a state-owned company in a command economy to a private company in a free-market economy. “But only a few companies succeed. We succeeded because at the shipyard I have good people.”

   The good people at the shipyards are fewer today than in 1989. GUS did not have shipyard figures for that year, but from 1996 to 1999 employment in construction and repair of ships and boats dropped from 47,752 to 42,466. Union officials said the decline was faster in earlier years and about 60% of the workforce was lost in one decade.

   “We had to try to save jobs but at the same time we had to try to save the shipyards so that we could employ at least half of the workforce,” Schreiber said. “We were the first industry to be restructured so we had to learn from our own mistakes.

   “We had to reorganize production, shorten production time, improve ship production and renovation schedules and improve productivity,” he said of the workers’ efforts through the 1990s. “The result was a lowering of the value of workers, which is a particular problem for us in the unions.”

   While the companies regained their footing, the government reduced subsidies. After a large loan forgiveness program, the treasury lowered financial aid from zł. 104 million ($37 million) in 1996 to only zł. 800,000 in 1998, the Economy Ministry reported. Industry officials said there are no subsidies today.

   Still, the ship renovation industry was turning a profit by 1997, according to an Economy Ministry report. The shipbuilding industry barely made it into the black by 1998 – though the ministry noted that Stocznia Gdańska was a huge drag on the overall industry’s profitability.

   Despite the massive cutbacks, the shipbuilding and repair economy still supports from 130,000 to 140,000 Polish jobs in the yards and related industries, according to an Economy Ministry analysis.

   The industry is still shaking out what managers consider redundant workers. This year, Stocznia Szczecińska has announced 1,000 layoffs, Stocznia Gdańska 500 and another small shipyard 280. Company officials note that these are mostly administrative positions and that production positions are rising.

    “We’ve hired more than 1,500 people since we purchased the (Gdańsk) shipyard in 1998, mainly for production,” said Arkadiusz Aszyk, an assistant to Janusz Szlanta, Stocznia Gdynia’s president. Today, Gdańsk has 3,500 workers, Gdynia 9,000 and a new facility in Elblšg will have 500 workers by some time next year, he said.

   If the company has its way, though, there will be 500 fewer administrators at Gdańsk yet this year. The announcement angered Solidarity and caused a demonstration by about 400 workers last month. Officials at the union have a much lower opinion of the industry’s transformation than company officials.

   “Generally Polish shipping hasn’t changed since 1989,” said Roman Galężewski, head of the shipyard’s Solidarity trade union. “I think it’s getting poorer. And there have been very small investments made into the industry for more than 10 years now. Therefore, the industry is becoming more and more outdated. This was one of the few industries whose product surpassed the Western industry and products. Thus our surprise that it is so under invested.”

   The Free Trade Union of Employees of the Maritime Economy also clamors for more investment – especially technological improvements that will keep the shipyards competitive – and greater recognition of worker sacrifices.

   But the shipyards maintain the importance of flexibility in the face of tough world competition.

   “I think the unions have to look to the future, not only to the past,” Goj said. “At our last meeting I told them that most important is for the company to be in good condition. That is how to protect jobs.”

   Aszyk said Gdynia has, if not very good, then at least good relations with unions.

   “The most difficult situation is in Gdańsk because of some historical mentality of the workers,” he said. “The shipyard has a very large administration. We bought it to build ships.”

   The privatization of Stocznia Gdańska, culminating in the 1998 purchase by Stocznia Gdynia, was a controversial process. Initially the treasury’s management was considered incompetent and the sell-off opaque, according to a report by the Supreme Chamber of Control (NIK). Nevertheless, Gdynia officials said they rescued the bankrupt yard and not only saved but added jobs.

   A world apart

   The labor-management strife is a world apart from the protests that rocked the government through the 1980s and today the greatest challenges to the industry come from outside Poland, especially from Japanese and Korean shipbuilders, with Chinese yards also growing quickly. Koreans and Japanese together accounted for about 70% of the world market in 2000. The European Union (EU) has spearheaded a battle against what it calls unfair trade practices by South Korean competitors, but antidumping efforts in the EU do little to help Poland.

   Goj said the trouble could lead to greater subsidies within the EU, which would mean an even tougher battle for the market with Western European builders.

   “The main worry is the Koreans,” said Jerzy Doersser, chairman of Forum Okrętowe, a Polish shipping association, noting that Poland and South Korea compete for many of the same customers. “They are cutting down the prices of ships. What will be the final outcome is tough to say.”

   Prospects are good but competition is fierce and more investment is necessary, Doersser said.

   Still, order books, filled well in advance of delivery, are fat as the booming world economy of the 1990s and 2000 fed the demand for more shipping. While production tonnage peaked in 1998, industry officials said profitability could increase based on the type of ships made - and largely based on the national currency’s strength. As for overall it, the Economy Ministry projected that production would not increase from 2001 through 2010.

   “In the long run Poland may become a leader of the European shipping industry,” the ministry said. “It will be possible for Poland as long as the shipyards have a competitive advantage with low labor costs, highly qualified staff, increasing productivity and developed companies producing equipment.”

   According to the Organization for Economic Cooperation and Development (OECD), Poland cranked out 34 ships worth $820 million in 2000, mostly container ships and high-speed liners but also bulk carriers, general cargo ships, chemical carriers, liquid propane gas carriers and a car carrier. All but one of the vessels completed were exported, the OECD said. Sixty-seven new orders came in during 2000, bringing the total number on order to 97 -– with 46 slated for delivery this year and 31 in 2002, according to OECD figures.

   As the figures indicate, the long-term prospects could be good.

   “As the standard of living of the whole world increases, transportation is the most important problem, especially of raw materials, which have to be transported by ship,” Doersser said, noting that the demand for shipping has increased by about 3% per year for the last 50 years. “There is an increasing demand for shipping that will be satisfied by increased production. But where the production will be is difficult to say.”

   Relatively low wages helped Poland but technical innovation and quality products are also crucial, because the Baltic companies cannot compete on price alone.

   “If we went purely after price we’d probably be buying in Asia,” said Thomas Springer, an assistant manager at Oskar Wehr, a Hamburg-based ship owner that has nine vessels on order from Stocznia Szczecińska. “But we like the quality in Poland and the price is competitive. It’s definitely a combination of both. And when you can get in an airplane and be there in an hour and a half, that makes it easier than going all the way to Asia.”

   Specialization is also crucial – Springer noted that the Szczecin yard is the only one that builds the exact boat specified by the company.

   “The situation is not bad, in fact it is quite good, in spite of the competition, especially from the Korean shipyards,” said Jan Stoppa, Gdańsk’s deputy mayor for economic affairs. “It is a situation we have to monitor, because the maritime industry is quite important for us. It is not the only thing we do in Gdańsk, but it is important for us.”