Project:

Country:

Japan / Europe

Client:

Year:

2009

A sharp increase in steel and other material costs in 2008 had a significant impact on the profitability of the world’s shipbuilders. The aims of this study were to quantify the extent of increases, to model the impact on typical shipbuilding contracts in Europe and to investigate measures being taken to mitigate the effects of rising prices.

First Marine International (FMI) has developed models that enable shipbuilding costs to be reliably studied without requiring access to shipyard accounts. These models were used in this case to estimate the effects of increasing material costs for typical contracts built in European shipbuilding. The effects of rising material costs were evaluated for ships with varying labour content and in differing scenarios relating to the labour cost base.

Measures taken to try to minimise the effects on shipyards’ bottom lines were reviewed. Various techniques were identified with varying success in implementation.

FMI also reviewed the use of escalation clauses in shipbuilding contracts in Europe and identified other industries that could provide examples of the use of such clauses or other techniques for managing material cost increases over the life of a contract.