Wartsila to gain larger foothold in rising market
Wartsila Corp, one of the world's largest ship power suppliers and manufacturers by revenue, is hoping to turn China into its biggest market by adding more manufacturing capacity in the country next year.
Eager to gain a larger foothold in the nation's lucrative shipbuilding market this year, the Finnish company will open a joint venture - Wartsila Yuchai Engine Co Ltd - in the middle of 2014, to manufacture medium-speed marine engines to serve the increasingly dominant Chinese shipbuilding industry in Zhuhai, in South China's Guangdong province.
Wartsila and Yuchai Marine Power Co Ltd, a subsidiary of Guangxi Yuchai Group, each owns half of the new company's shares. It will focus on manufacturing and testing a series of medium speed engines. The value of Wartsila's investment in this joint venture is 17 million euros ($23.5 million).
Jaakko Eskola, senior executive vice-president of Wartsila, said the joint venture is a concrete step in Wartsila's global strategy to capitalize on significant growth opportunities and increase its focus on the offshore and special segments in China, the world's largest shipbuilding country.
Indeed, China's newly received orders hit 46.44 million deadweight tons in the first 10 months of this year, about 46.4 percent of the global market share. Ongoing orders totaled 118 million deadweight tons, 45.4 percent of the industry's share. The country completed 34.8 million deadweight tons in the meantime, according to China's Ministry of Industry and Information Technology.
"Surging ship orders mean more Chinese and international ship owners. We have been looking for this opportunity for many years," Eskola said. "China is building more offshore specialized vessels and merchant ships. The number of Chinese ship owners is also growing faster than before."
Affected by factors such as overcapacity of global shipping and shipbuilding markets, plus Chinese shipyards' low-end market competition with Japan and South Korea, the ship prices of bulk and container vessels compared with 2008, have dropped 40 and 30 percent this year, according to the China Association of the National Shipbuilding Industry in Beijing.
For instance, a 30,000-ton bulk carrier could have been sold for more than 300 million yuan ($49 million) in 2008 in any shipyard in Nantong, in East China's Jiangsu province, but its price has now dropped to 160 million yuan. Therefore, many shipping companies from both China and abroad began to expand their fleet by placing orders from Chinese shipyards. They expect the market to recover in 2015.
Dong Liwan, a professor at Shanghai Maritime University, said most merchant ships produced in China use low-end mechanical transmissions and are propelled by an engine spinning a propeller.
"They usually use steam engines, multiple-stroke diesel engines or gas turbine engines," said Dong. "It is time for Chinese shipyards to meet the challenges being posed by both fierce competition with South Korea and Japan and tough environmental regulations."
The majority of container or bulk vessels manufactured by shipyards from developed and South Korean markets has already adopted the technologies such as dual-fuel and liquefied natural gas-powered solutions, or integrated electric propulsion technology, which can effectivly cut emissions, fuel use and operational costs.
"Wartsila really sees the growth in the marine market and China's demand for more energy-efficient vessels. The owners demand fuel flexibility, but they also need to have environmental solutions to satisfy environmental regulations which are getting stricter these days," Eskola said.
The company introduced its new two-stroke dual-fuel engine technology in November to offer the flexibility much sought after by ship owners and operators, allowing them to switch between gas and residual or distillate fuels, depending upon price and bunkering availability.
In 2012, Wartsila's net sales totaled 4.7 billion euros with 18,900 employees. The company has operations in nearly 170 locations in 70 countries around the world. It currently has more than 2,000 employees working in two wholly owned plants and five joint ventures in China. The company plans to continue to increase its local manufacturing capacity in China over the next five years.
Eskola believes that the biggest difference between Chinese and South Korean shipyards is the product requirement coming from shipyards. The shipyards in South Korea have already been well established in the offshore sector and they know how to build the most sophisticated vessels, said Eskola.
Wartsila and Yuchai Marine Power Co Ltd, a subsidiary of Guangxi Yuchai Group, each owns half of the new company's shares. It will focus on manufacturing and testing a series of medium speed engines. The value of Wartsila's investment in this joint venture is 17 million euros ($23.5 million).
Jaakko Eskola, senior executive vice-president of Wartsila, said the joint venture is a concrete step in Wartsila's global strategy to capitalize on significant growth opportunities and increase its focus on the offshore and special segments in China, the world's largest shipbuilding country.
Indeed, China's newly received orders hit 46.44 million deadweight tons in the first 10 months of this year, about 46.4 percent of the global market share. Ongoing orders totaled 118 million deadweight tons, 45.4 percent of the industry's share. The country completed 34.8 million deadweight tons in the meantime, according to China's Ministry of Industry and Information Technology.
"Surging ship orders mean more Chinese and international ship owners. We have been looking for this opportunity for many years," Eskola said. "China is building more offshore specialized vessels and merchant ships. The number of Chinese ship owners is also growing faster than before."
Affected by factors such as overcapacity of global shipping and shipbuilding markets, plus Chinese shipyards' low-end market competition with Japan and South Korea, the ship prices of bulk and container vessels compared with 2008, have dropped 40 and 30 percent this year, according to the China Association of the National Shipbuilding Industry in Beijing.
For instance, a 30,000-ton bulk carrier could have been sold for more than 300 million yuan ($49 million) in 2008 in any shipyard in Nantong, in East China's Jiangsu province, but its price has now dropped to 160 million yuan. Therefore, many shipping companies from both China and abroad began to expand their fleet by placing orders from Chinese shipyards. They expect the market to recover in 2015.
Dong Liwan, a professor at Shanghai Maritime University, said most merchant ships produced in China use low-end mechanical transmissions and are propelled by an engine spinning a propeller.
"They usually use steam engines, multiple-stroke diesel engines or gas turbine engines," said Dong. "It is time for Chinese shipyards to meet the challenges being posed by both fierce competition with South Korea and Japan and tough environmental regulations."
The majority of container or bulk vessels manufactured by shipyards from developed and South Korean markets has already adopted the technologies such as dual-fuel and liquefied natural gas-powered solutions, or integrated electric propulsion technology, which can effectivly cut emissions, fuel use and operational costs.
"Wartsila really sees the growth in the marine market and China's demand for more energy-efficient vessels. The owners demand fuel flexibility, but they also need to have environmental solutions to satisfy environmental regulations which are getting stricter these days," Eskola said.
The company introduced its new two-stroke dual-fuel engine technology in November to offer the flexibility much sought after by ship owners and operators, allowing them to switch between gas and residual or distillate fuels, depending upon price and bunkering availability.
In 2012, Wartsila's net sales totaled 4.7 billion euros with 18,900 employees. The company has operations in nearly 170 locations in 70 countries around the world. It currently has more than 2,000 employees working in two wholly owned plants and five joint ventures in China. The company plans to continue to increase its local manufacturing capacity in China over the next five years.
Eskola believes that the biggest difference between Chinese and South Korean shipyards is the product requirement coming from shipyards. The shipyards in South Korea have already been well established in the offshore sector and they know how to build the most sophisticated vessels, said Eskola.
