Despite the massive effect of the global downturn on builders of commercial aircraft and ships, companies primarily involved in the building of their military equivalents fared considerably better. The national security considerations of governments and long-term planning undertaken for military expenditure have ensured that revenue for the Global Military Shipbuilding and Submarines industry has been relatively stable.
IBISWorld expects that industry revenue will increase at an annualized 1.2% to $38.9 billion in the five years through 2012. “This growth is primarily attributed to the demand for military ships and boats to protect coastal waters and to expand and renew navy fleet sizes,” says IBISWorld industry analyst David Stephen. “The contributions to industry revenue are particularly strong from North America, Europe and North Asia.” Government military budget cuts are forecast to lead to slower revenue growth of 0.3% over 2012.
Global Military Shipbuilding and Submarines industry profit margins have been relatively stable over the past five years, stemming from the contractual and long-term nature of shipbuilding. Nonetheless, profit margins declined slightly in the aftermath of the global downturn. “Customer countries burdened with high levels of government debt started cutting defense spending, which put pressure on industry margins,” says Stephen, “and the industry was able to reclaim previous profitability levels through capacity cuts.” Profit margins are expected to remain stable over the next five years due to the stability of military demand and naval spending.
Revenue growth over the five years to 2017 will stem from reasonable growth in defense budgets (particularly in the United States) and a focus on advanced electronics and information systems capabilities. An increase in naval manufacturing in developing countries is also anticipated. The level of concentration has decreased over the past five years due to greater naval investment outside of the United States.
In addition, China is expected to be the leading shipbuilding nation by 2020. The constant need to value-add ships and make them bigger is a strain to many companies. Shipbuilding is favored by many developing nations (e.g. South Korea and China) as a means of building their industrial base and supportive incentives offered by their respective governments can easily erode an existing player’s market share.
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Source: ibisworld, July 9, 2012; Image: hii