Memorandum submitted by Glasgow City Council
(SHP 1)
Contents
| 1 | Brief history
|
| 2 | Reasons for decline of commercial shipbuilding
|
| 3 | Defence |
| 4 | UK market |
| 5 | Export market |
| 6 | Type 45 Destroyers / Aircraft Carriers
|
| 7 | Related issues |
| | 1. Strategic Defence Review
|
| | 2. Political sensitivity
|
| | 3. Shipbuilding Forum
|
| 8 | Government support |
| 9 | BAE SYSTEMS Marine |
| 10 | The Clyde yards |
| 11 | Future investment |
| | 1. Current investment
|
| | 2. Future investment
|
| 12 | Critical risks to the Clyde
|
| 13 | Beyond 2015 |
Bibliograph
| Clyde Shipyards Task Force Report | January 2002
|
| Shipbuilding in the UK—2000 and Beyond, Ian Goudie
| October 2000 |
| Shipbuilding, Ship-repairing and Marine EngineeringIndustry, SRC Department of Physical Planning
| November 1976 |
| Strathclyde Built in the 1990s, Shipbuilding WorkingGroup, Strathclyde Regional Council
| May 1987 |
| Report on Kvaerner Govan, Glasgow City Council
| April 1997 |
1. Brief history
At its peak in the 1920s the UK shipbuilding industry produced
1.9 million gross register tons and employed 326,000 people in
135 major yards. Since then, the trend has—with the exception
of the 2nd world war/post war reconstruction period—been
steadily downward. Key periods of change in employment have coincided
with:
| — | Early 1930s
| 88,000 | (depression)
|
| — | Late 1930s
| 199,000 | (arms build up)
|
| — | Late 1940s
| 247,000 | (war production)
|
| — | Late 1950s
| 215,000 | (start of de-industrialisation)
|
| — | Mid 1960s
| 163,000 | (recession/rise of Germany and Japan)
|
| — | Mid 1970s
| 87,000 | (at formation of British Shipbuilders)
|
By 2000, there were only around 25,000 people in the UK directly
involved with new build, ship repair and conversion. The new build
portion of this figure had itself fallen to around 9,000 by that
time.
In common with many other traditional forms of heavy industry,
shipbuilding in Britain has been in decline since the 1950s and,
within certain sub-sectors of the industry even before that.
Reports on the decline of shipbuilding on the Clyde are not themselves
new. On the formation of Strathclyde Regional Council, for example,
research was carried out into the all of the main industrials
sectors in the new Strathclyde Regional Council area. The 1976
report on shipbuilding, ship repairing and marine engineering
produced by the Regional Council concluded that "the overall
conclusion of this report is that the local and UK shipbuilding
industry is in a very depressed state".
That report charted a year on year decline in new orders in the
UK from the early 1960s through to 1976 (with the exception of
1973 when there was a one-off boost through a number of large
oil tanker orders). It also stated that the UK's share of world
shipbuilding orders had declined more or less continuously since
the 1950s and noted that "the inability of the UK industry
to maintain its competitive position is the main long term factor
affecting the future of the industry". Unreliable delivery
performance and high prices in comparison to Far Eastern competitors
(notably Japan and South Korea) were cited as the main reasons
for this lack of competitiveness.
Statistics available to the Council show the extent of the decline
in shipbuilding on the Clyde and the decline in shipbuilding employment
in the Glasgow yards. For example:
— between 1971-75 126 new vessels were ordered from
the shipyards within the former Strathclyde area in all classes
of vessels from shipyards employing 30,000 direct workers;
— the order book for the Glasgow shipyards has moved
from a mixed defence/commercial portfolio to a wholly defence
related portfolio;
— employment in the two Glasgow yards fell from 9,400
in 1982 to nearer 6,000 in 1991, to 3,000 in 2001, and is moving
towards a core workload of 2,000 by the end of 2002 under the
current BAE SYSTEMS strategy.
While both of the Glasgow yards (Govan and Scotstoun) have remained
open they have suffered regular crises as the order book has worked
through and new work has become harder to secure. Moreover they
have continued to operate within a "feast and famine"
regime within which the order book has either been filled by multi-vessel
ordering or moving towards empty—which has created uncertainty
for both the yard managers/owners in bringing forward investment
and for the workforces in dealing with the human issues posed
by constant threat of redundancy.
However although employment in the Glasgow yards has declined
more or less consistently since the mid 1950's it is still a very
important component of the Glasgow economy. For example:
— it accounts for 8 per cent of all manufacturing employment
in the city;
— it sustains substantial employment in sub contractors/suppliers;
— it sustains substantial employment through the employment
multiplier effect of employee wage expenditure;
— in total each job in the yard sustains a job elsewhere
in the economy;
— it provides high quality/high skilled/high wage manual
employment—which is increasingly absent in the city;
— it sustains a core of highly skilled workers within
the city;
— it represents a good demonstration of how a traditional
industry has adapted by making increasing use of new technology
in both the design and manufacturing processes to improve productivity;
— it contributes to the engineering and skills training
infrastructure within the city.
Shipbuilding is therefore still a strategic industry for the city.
2. Reasons for decline of commercial shipbuilding
The decline of British shipbuilding mirrors a more general decline
in much of the UK's traditional heavy engineering. In comparison
to Far Eastern rivals British firms have paid higher wages, have
invested less in capital equipment and facilities, and have "missed
out" on entering some of the more lucrative commercial market
sectors. Moreover they exist in a European market which has seen
a general phasing out of subsidy—but in a global market
in which the main competitors appear to have remained highly subsidised.
They have become increasingly less competitive in global markets.
Britain had a technological edge in shipbuilding until perhaps
the mid 1950s. However the post war reconstruction efforts in
competitor countries, combined with very high direct and hidden
subsidy policies, left the UK commercial marine sector highly
exposed to international competition. Once Britain had lost the
technological—and productivity edge—on its rivals
the final decision on build location rested on price, delivery,
and (increasingly) the availability of offsets. Moreover the long
anticipated boom in "fleet replacement" shipbuilding
has never materialised, as owners have been content to maintain
elderly fleets rather than invest capital on new ships. Thus,
commercial shipbuilding declined throughout the 70s, 80s and 90s
to a point where there is little commercial shipbuilding in Britain.
This has had important implications for Glasgow with frequent
crises at the merchant yard in Govan formerly operated by Govan
Shipbuilders, then Kvaerner, prior to its purchase by BAE SYSTEMS
and its conversion to a defence yard. Over the last 20 years the
Govan yard has attempted to reposition itself several times by
moving into Niche markets (for example specialised double hulled
LPG tankers and specialised vessel ferries carriers) or trying
to advance technology (eg the investment made in potential modular
construction). By comparison, however, limited attempts appear
to have been made to enter the growing leisure shipping market
(eg cruise ships) which other European yards have successfully
entered (eg Finland). As a result Kvaerner in particular, of the
two Glasgow yards, has found it increasingly difficult to find
a "core business niche" within which it could develop
as a market leader or key player. The Govan Yard was therefore
on the point of full closure prior to the "rescue" by
BAE SYSTEMS.
The Scotstoun yard by comparison has focused solely on building
for the defence market, and while it has been successful in securing
lead yard status for a range of vessels and in securing some export
defence orders, its prospects have become increasingly reliant
on MoD spending decisions and procurement methods.
3. Defence
The depletion of commercial shipbuilding has led to a very heavy
reliance on military work as the main source of orders for British
yards. However, there are two main factors affecting demand:
— Firstly, worldwide military expenditure has been falling
over the past 10-20 years.
— Secondly, an emphasis on technology means that fewer
but more sophisticated ships are being built.
In Britain, defence spending has been falling since after the
Falklands war, as shown below:
Defence expenditure as a per cent of GDP
1988 4.1 per cent
1992 3.8 per cent
1996 3.0 per cent
2000 2.5 per cent
There is however one important issue which currently guarantees
work in the UK—the Government's policy of building its own
high capability vessels. This is in line with practice in most
other advanced countries and while the "preferred supplier"
model remains there will be Ministry of Defence work for UK yards.
4. UK market
The Royal Navy requires the capability to sustain warship deployment
on a worldwide basis, either alone or with other navies. In order
to perform military, constabulary or benign tasks, the Navy needs
a range of vessels:
— For amphibious operations.
— As aircraft carriers.
— As sophisticated defence ships.
— As submarines.
— As support, supply and replenishment vessels.
With regard to BAE SYSTEMS Marine, Navy vessels currently under
construction or on order on the Clyde include:
— One Auxiliary Oiler being fitted out at Govan for
service in 2002.
— Eight Landing Craft Utility being built at Govan for
delivery in 2002-03.
— Two Alternative Landing Ships Logistics (ALSL) on
order at Govan.
— Six Type 45 Destroyers on order with BAE SYSTEMS and
subcontractors to enter service from 2007. Scotstoun, Govan and
Barrow yards will be involved.
The Ministry of Defence has also given statements on future requirements
and further intentions:
— Up to nine Type 45 Destroyers. (The total for Type
45 is therefore 12, equating to six on order and up to six more
to follow in the future).
— Two or three Astute Submarines, with an order planned
for 2002.
— Two Aircraft Carriers. First steel to be cut 2005-06
with ships entering service in 2012 and 2015. Contracts will probably
be awarded by 2004.
— One Primary Casualty Receiving Ship.
— Future Surface Combatant (Type 23 replacement). Up
to 20 vessels required with an in-service date of around 2015-16.
— Maritime Underwater Capability—in concept phase.
— Several new designs for Royal Fleet Auxiliary expected
to enter service 2008-15.
The aircraft carrier order is vital to BAE SYSTEMS Marine
as these are the largest and most sophisticated ships which will
be built in the UK for the foreseeable future.
5. Export market
Most advanced countries do not purchase high capability warships
from overseas suppliers. Further limitations are that the UK Government
may not permit the sale of warships to certain countries. Moreover
many countries cannot afford the high specification vessels. This
means that the potential export market is small and likely to
remain so.
The export market is limited in scale and extremely competitive
in nature. European-based primary contracting organisations (PCOs)
such as DCNI and Blohm & Voss compete with BAE SYSTEMS for
the limited export orders available. Further issues in the warship
export markets include:
— Long timescales from indication of requirement to
actually placing an order.
— Importance of long-term relationships between shipbuilder
and client.
— Potentially high level of Government influence involved
in securing export contracts.
— Increased requirement for technology transfer from
builder to client country.
— High cost of pursuing contracts which may ultimately
be lost.
6. Type 45 Destroyers / Aircraft Carriers
In July 2000 the MoD announced the construction of three Type
45 Anti Air Warfare Destroyers, with a planned class of up to
12. BAE SYSTEMS emerged as the prime contractor and following
discussion on various construction proposals, it was agreed that
BAE SYSTEMS Marine would subcontract a portion of the work to
Vosper Thornycroft. The order was extended to six vessels in February
2002. The principle of work share between BAE SYSTEMS Marine and
VT will apply to the whole class.
The Strategic Defence Review (see below) stated the requirement
for a new class of aircraft carrier to replace the existing Invincible
class. The two new carriers will be around twice as large as the
previous carriers and will be the largest warships built in the
UK for around 50 years.
The carriers constitute a large and technically sophisticated
project that will utilise a substantial part of UK shipbuilding
capacity over the period 2005-14. As such, this contract is very
important to BAE SYSTEMS Marine and it requires to undertake a
considerable portion of the work in order to maintain employment
levels.
7. Related issues
7.1 Strategic Defence Review
When the present Government came to power in May 1997, one of
its manifesto commitments was to undertake a comprehensive review
of Britain's security interests and defence needs. The Strategic
Defence Review (SDR), published as a White Paper in July 1998,
also set out Britain's military naval requirements over the short
to medium term.
There are several initiatives emanating from the SDR:
— A medium term plan to alter the make-up of the Fleet
(two new carriers, strengthening the amphibious force by adding
four Ro-Ro ships, two more Astute class submarines, modernising
the destroyer and frigate force, reducing the number of surface
escorts and minesweepers).
— Five new Defence Agencies, including the Defence Procurement
Agency.
— Smart Procurement Initiative, which aims to avoid
previous problems such as spiralling costs and unmet deadlines.
7.2 Political sensitivity
Britain's maritime history and the social/economic traditions
attached to shipbuilding in the traditional shipbuilding cities
(Glasgow, Liverpool, Newcastle, Portsmouth, Belfast etc) means
that any decisions affecting the shipyards are particularly sensitive.
In 2000, the possibility of the four Ro-Ro ships being built in
Eastern Europe, for example, was raised as a major political issue
resulting in the MoD asking the four relevant consortia to re-tender.
While shipbuilding is now a minor component of overall employment
within the city the reality is that the tradition of shipbuilding
on the Clyde is an intrinsic part of Glasgow's heritage and social
fabric. Anything which adversely affects procurement and employment
within the yards will therefore be debated as both an economic
development and a political issue.
7.3 Shipbuilding Forum
In 1998-99, the Department of Trade and Industry responded to
calls for a coherent national shipbuilding policy by establishing
a Shipbuilding Forum. Within the initiative there is broad co-operation
between unions, employers, Chamber of Shipping, Shipbuilders and
Ship repairers Association (SSA) and British Marine Equipment
Council (BMEC). By October 1999, over 40 recommendations had been
produced and the resultant Shipbuilding Implementation Plan supports
and encourages practical recommendations that will benefit the
industry.
8. Government support
The British Government has to work within EU rules with regard
to shipbuilding subsidy, making it more difficult for British
yards to compete with subsidised Far Eastern builders). However,
there are several current initiatives to help, mainly, the commercial
market:
— DTI benchmarking project to compare performance indicators
with "world class" competitors.
— Master class involving academic research and site
visits by consultants. Funded and organised by the DTI and SSA.
— Shipbuilders' Relief Fund which subsidised commercial
shipbuilding contracts up to 9 per cent of value and warship contracts
up to 2 per cent of value. These figures are currently being reviewed
by the EU.
9. BAE SYSTEMS Marine
Large scale mergers and takeovers have produced a small number
of global companies. These companies, such as Boeing, Lockheed,
Martin, Raytheon, Thales and BAE SYSTEMS, are all capable of acting
as the prime contracting organisation (PCO) for multi-billion
pound defence contracts. However, BAE SYSTEMS Marine can work
under subcontract to PCOs other than BAE SYSTEMS and does not
necessarily have to rely on BAE SYSTEMS to secure work.
BAE SYSTEMS Marine operates out of three main yards—Scotstoun,
Govan and Barrow.
The main elements of the BAE SYSTEMS Marine strategy are:
— The three yards main yards are managed as one business,
with harmonised processes and culture. This includes HR and IT
systems.
— Govan will be a steelwork centre of excellence for
the company.
— Export warships and the first Type 45 Destroyer will
be built at Scotstoun.
— Scotstoun will be the centre of excellence for outfitting
of future Clyde vessels and Type 45 block build and engineering.
— Barrow will be a centre of excellence for nuclear
submarine and Type 45 assembly, utilising the Devonshire Dockyard
Hall.
— However, there will be a rationalisation of people
and buildings. Employee numbers will be cut and specified premises
will be leased or demolished.
With regard to work on the Type 45, Marine plan to build on the
Clyde and finish at Barrow. The degree of finish at Govan has
been increased from 35 per cent to 80 per cent, meaning more labour
hours and a more advanced level of work before the material is
moved to Barrow.
10. The BAE Strategy For The Clyde Yards
The Clyde Shipyards Task Force (CSTF) commented favourably on
the future strategy of BAE SYSTEMS Marine. In particular it noted
that:
— The strategy requires success in export markets and
specifies that export warships will be built on the Clyde. Barrow
cannot be used as national security restrictions govern the use
of the Devonshire Dockyard Hall. In addition, the Astute submarine
build programme ties up DDH until 2010.
— The Clyde yards provide a significant portion of BAE
SYSTEMS Marine's build capacity for blocks and fitting out. Type
45s could not be built at Barrow alone.
— Marine requires the Clyde yards' resources, expertise
and capacity to compete for the carrier contract.
— The local infrastructure of suppliers and sub-contractors
to the Clyde yards may not be transportable to Barrow.
— Marine estimates that it employs 80 per cent of the
UK's skilled warship workforce and that 40 per cent of them are
located on the Clyde. Relocation for such a large number of people
would not be feasible.
11. Future investment
BAE SYSTEMS Marine's investment plans offer the most compelling
evidence that the Clyde yards are a vital part of the company's
future. The projected ten-year investment programme totals over
£150 million, of which around £75 million will be invested
in Scotstoun and Govan. Notable current and future investment
items include:
11.1 Current investment
Scotstoun
— £1m—
pipe shop.
— £450k—
joiners shop.
new module hall doors.
new crane.
new dry dock doors.
Govan
— £600k—
plasma burning machine.
— 600k—
modify doors.
new overhead cranes.
miscellaneous tooling.
11.2 Future investment
Scotstoun
site services.
amenities and canteen.
office upgrades.
outfit facilities.
manufacturing centre of excellence.
Govan
— £4m—
ro-ro transport.
— £5m—
super berth creation.
berth cranes.
steelwork centre of excellence.
launch arrangements.
new office facility.
12. Critical risks to the Clyde
The CSTF report gave three possible future events as being
critical risks for the Clyde yards:
— Failure to win export orders.
— Failure to win a significant carrier design and build
role.
— Any significant delays in the MoD build programme
for Type 45 and carriers.
Any of these events would trigger a review of strategy and could
therefore threaten future employment.
13. Beyond 2015
The carrier build programme (of which BAE SYSTEMS Marine could
reasonably expect to attract a substantial amount of work) is
due to be completed in 2015. Beyond that date the future of UK
defence expenditure is uncertain. What is predicted though, is
that the level of warship build for the MoD will reduce. Consequently,
BAE SYSTEMS Marine will be looking to actively manage both its
strategy and workforce requirements to meet whatever the demand
is.
The long term future for shipbuilding on the Clyde remains therefore
as uncertain as ever, and suggests that while the short-medium
term prospects for shipbuilding on the Clyde are more secure than
at any time in the recent past the traditional "feast-famine"
workload pattern will return at some point in the future.
April 2002
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