Ship investment at a standstill? An analysis of shipbuilding activities and policies

Abstract

In the wake of the global financial crisis which started around mid-2008, the global shipbuilding industry is no longer in a state of euphoria as before. The volume of new ship orders dropped dramatically after August 2008. We are motivated to examine three issues in this article: First, in the context of shipping industry, which variable(s) play the most important role in a ship investment decision? Second, do government support and favourable investment conditions really help to save shipbuilding industry from the distressing situation? Third, if we separate Japan, South Korea and China as leading shipbuilding clusters, what will the cluster effect be? Our results indicate that the investment of ships can be decided by the freight level, the supply of the market (fleet size), the demand of the ships (trade volume) and the transport service share (location advantage). However, the state of the freight market is of major importance to the investment decision of ships. Shipbuilding price, second-hand ship price and foreign direct investment in transport are proved to have no linkage to ship investment. Besides, the rising role of Japan, South Korea and China in shipbuilding is also identified.