Recent defence budget cuts contribute to subdued revenue growth
Melbourne, Australia (PRWEB) October 14, 2012
The Shipbuilding industry in Australia does not compete in the world market for tankers, container ships or bulk ships. Giant corporations in Asia dominate that market with technology and scale advantages that are nearly impossible for Australian companies to bridge. Instead, Australian shipbuilders concentrate on niche products such as high-speed catamarans, which can successfully find overseas buyers. The other big customer is the Federal Government, with the Australian Navy awarding lucrative and lengthy contracts to Australian shipbuilders for frigates, submarines and other vessels. According to IBISWorld industry analyst Ricky Willianto, “the Shipbuilding industry’s lack of participation in the marketplace for large commercial ships proved to be a blessing in disguise over the past five years”. The global commercial shipbuilding sector entered a tailspin due to the severe oversupply of cargo ships in the wake of falling shipping rates during the global downturn. In contrast, the lack of market-led volatility in defence spending created significant stability for Australian industry revenue. Thus, industry revenue is forecast to grow at an annualised 1.1% over the five years through 2012-13 to reach $2.61 billion. Restrained growth in government spending, the strong Australian dollar and recent defence budget cuts contributed to the subdued revenue growth.
The Shipbuilding industry in Australia is expected to grow more strongly over the next five years. The stronger revenue growth is due to the recovery of export market demand and the gradual worldwide reduction in excess shipping capacity. “The recovered export markets will create opportunities for fast ferries, defence vessels, patrol vessels and workboats,” Willianto adds. Growth in Federal Government defence spending will be subdued over the next five years. Industry revenue derived from naval spending will likely peak late in the next five years, due to the construction of the Hobart Class destroyers and the fit-out of the Canberra class landing helicopter docks. The Shipbuilding industry in Australia portrays a high level of market share concentration. The top four players are ASC, BAE Systems Australia, Thales Australia and Forgacs Engineering.
The primary reasons for the high market share concentration in the industry are the relatively high barriers to entry and a market dominated by few buyers. In addition, the cost associated with manufacturing military ships, boats and components are very high. Investment in expensive specialised capital equipment also creates high exit costs deterring new entrants to the industry.
Contracts usually go to existing players in similar fields with prior contracts or proven experience in the specified area of development. This is especially true in the military segment. Market share concentration is expected to remain at this level as significant research and development is required to develop new products and innovation in the defence area. The industry may become more concentrated in the future if the Department of Defence decides to select one major player as its partner in naval shipbuilding.
For more information, visit IBISWorld’s Shipbuilding report in Australia industry page.
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IBISWorld industry Report Key Topics
Companies involved in the Australian Shipbuilding industry primarily manufacture or repair vessels of 50 tonnes and over displacement. Other activities include the manufacture of submarines, and other major components for ships and submarines.
Key External Drivers
Industry Life Cycle
Products & Markets
Products & Services
Market Share Concentration
Key Success Factors
Cost Structure Benchmarks
Basis of Competition
Barriers to Entry
Technology & Systems
Regulation & Policy
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