Smooth sailing in shipbuilding

By Sven Siepen, Christian Vinck, Simone Schatto and Sebastian Koper

The global shipbuilding industry is in choppy waters. The COVID-19 pandemic disrupted operations and strained the traditional business models that many shipbuilders rely on. In the aftermath, high inflation further compounded these difficulties, squeezing profit margins and increasing the urgency for more effective cost management. Today, geopolitical uncertainties, such as the threat of rising US tariffs and retaliatory measures, underscore the need for the industry to reassess strategies that have served it for decades.

So, what should this re-evaluation focus on? In this article, we examine the current state of the shipbuilding industry, explore the key challenges it faces, and highlight why resilience is essential for long-term success. We also present six resilience levers that will enable shipbuilders to maintain high performance and competitiveness, even in turbulent times – with Roland Berger offering tailored tools to support these efforts.

Industry status and outlook: Trade, aging fleets and uncertainty driving growth

Following the disruptions of recent years, the shipbuilding industry has regained a measure of stability. Shipbuilders are currently benefiting from a strong market outlook, with steady growth projected over the next decade. For example, the commercial shipbuilding market is expected to grow at a compound annual growth rate of 2–3% through 2030.

This growth is driven by several factors. Long-term global trade forecasts, aging fleets that require replacement, and stricter environmental regulations – such as those introduced by the International Maritime Organization (IMO) – are all creating sustained demand. By 2035, we anticipate the addition of 20,000 new ships, totaling more than 2,000 gigatons, to the global fleet.

Geopolitical instability is also contributing to growth, particularly in the defense sector. Rising risks of conflict have led to increased defense budgets worldwide. NATO, for instance, has set new annual defense spending targets of 5% of national GDPs, which will necessitate significant investments in related equipment and infrastructure. This presents opportunities for companies involved in both military and commercial shipbuilding which could strive for dual-use.

Several countries are already advancing plans to modernize and expand their naval capacities. Germany, Norway, and Canada are investing in new submarine fleets, while Australia and the United States are working to significantly enlarge their overall naval capabilities. These plans often include the addition of uncrewed and autonomous underwater and surface vessels. The US Navy, for example, aims to build a fleet of 500 vessels, comprising 350 crewed and 150 uncrewed ships.

Regional expansion to meet growing demand

To accommodate market growth, regional shipbuilding capacities are expanding. In Saudi Arabia, the International Maritime Industries (IMI) shipyard – the largest in the Middle East, with a 12-million-square-meter facility capable of producing 40 newbuild vessels and servicing 260 maritime products annually – is scaling up production. In Morocco, the National Ports Agency has issued tenders for Africa’s largest shipyard, aiming to capture demand overflow from saturated European shipyards and serve African ships heading to Europe.

Meanwhile, the United States is bolstering its commercial shipbuilding sector through legislative and financial support. A $5 billion investment, part of a comprehensive shipbuilding bill, is being funneled into the industry, with additional partnerships formed with South Korean shipbuilders Hanwha and Hyundai Heavy Industries.

The forecasted growth and capacity expansion plans present exciting opportunities for shipbuilding companies to capture new markets and scale their operations. However, these opportunities are not without risk. The industry must navigate a complex environment shaped by economic pressures, geopolitical tensions, and shifting regulatory landscapes.

In the face of these challenges, resilience will be the key differentiator for shipbuilding leaders. By adopting forward-looking strategies and leveraging innovative tools, the sector can chart a course toward sustainable growth and long-term success.

The five major challenges facing shipbuilders

In light of the factors outlined above, we have identified five key challenges currently facing the shipbuilding industry:

1. Geopolitical instability
2. Financial performance pressure
3. Growing cost of supply
4. Overstretched supply chains
5. Delivery capacity limitations

Geopolitical instability

The ongoing wars in Ukraine and the Middle East, coupled with the potential for a China-Taiwan crisis, underscore the tectonic shifts in the geopolitical landscape in recent years. While the degree of exposure to these risks varies across companies, the overall impact is felt sector-wide. Shipping routes are increasingly at risk, and energy prices remain volatile, creating an environment of persistent uncertainty.

Strategically, shipbuilders must ask themselves: What is required to remain competitive in this evolving international order? Those who can adapt to the new geopolitical realities will be better positioned to navigate the challenges ahead.

Financial performance pressures

Securing financial performance has never been more critical. Shipbuilders need to maintain profitability to reinvest in transformative technologies such as alternative propulsion systems and autonomous vessel products. Innovation is key to ensuring long-term competitiveness.

Additionally, maintaining financial flexibility is essential to weather unexpected shocks, such as sudden order slowdowns or external disruptions. Without addressing these financial pressures, shipbuilders could face existential risks to their operations.

Growing cost of supply

The cost of materials and manufacturing remains volatile and is likely to trend upward. Shipbuilders must contend with rising logistics costs, tariff impacts, raw material price spikes, and increasing labor costs driven by skilled workforce shortages—particularly in Europe and the US.

Although demand in the shipbuilding industry is currently robust, buyers remain highly cost-sensitive. To stay competitive, shipbuilders must focus on identifying synergies and improving operational efficiencies.

Overstretched supply chains

For decades, global supply chains have been the cornerstone of shipbuilding operations. However, recurring disruptions have made this model increasingly fragile. The reliance on best-cost suppliers in regions such as China or Eastern Europe is now being reconsidered in favor of more resilient, localized supply chains.

This shift is particularly urgent given the additional demand from the military sector, which risks overstretching the supply of critical components. In some cases, such as the US, commercial shipbuilding supply chains may need to be re-established almost from scratch. Strengthening supply chain capabilities is no longer optional—it is imperative.

Delivery capacity limitations

Aging populations in Europe and Asia are creating workforce shortages that directly impact shipbuilders’ ability to maintain or expand manufacturing capacities. For example, South Korea's shipbuilding industry has only been able to increase its workforce by attracting approximately 2,500 international workers.

The situation is further complicated by regional competition for skilled labor, as most shipyards are concentrated in specific areas, such as the German North and Baltic Sea coasts. This drives up salaries and intensifies the challenge of recruiting and retaining talent. To address this, workforce planning must be treated as a strategic priority rather than an ad-hoc response.

Resilience levers: How to build strength and reap the opportunities

The challenges outlined above demand immediate attention. Shipbuilders must assess their exposure to these challenges and take proactive steps to mitigate them. More importantly, to capitalize on the growth opportunities in the industry, they must build resilience. This involves focusing on what can be controlled to avoid being thrown off course.

To guide this effort, we have identified six resilience levers that will help shipbuilders secure both short-term performance and long-term competitiveness.

Strengthen supply chain planning

Geopolitical instability calls for a thorough review of shipbuilders’ planning capabilities. We are seeing a trend away from globalized and interdependent value chains toward more regionalized/localized and decoupled value chains.

While shipbuilders may be aware of some of their weak links and at times are exposed to day-to-day disruptions, the big risks too often remain hidden, coming to light only when it is already too late. This puts delivery dates at risk. With a clear-cut supply chain planning maturity analysis, shipbuilders can identify improvement areas and define key measures to close planning capability gaps. Introducing a suitable planning system and process solution can increase forecast quality by 15%, for example. In addition, enforcing a shipbuilder S&OP process will strengthen internal mechanisms to prevent false planning assumptions and internal miscommunication, as well as help to define key improvement actions with supply chain partners.

Revamp direct material cost reduction

Material costs represent up to 70% of shipbuilders’ revenue, making them a critical target of resilience building. Recent crises and pricing pressures have led to a dilution of costs, and cost-cutting initiatives have been deprioritized in favor of securing volumes and combating inflation. Revamping direct material cost reduction will help to get a grip on material costs. This means leveraging the full toolbox of options, from cost and value analysis to software cost calculations. Applied in combination, these can reduce shipbuilders’ material costs by 10-15% within a year, as proved by recent examples in the European shipbuilding industry.

Rediscover design-to-cost

In new projects, an estimated 80-90% of costs are fixed in the initial design phase. While it seems obvious to focus cost-down efforts on this development stage, shipbuilders tend to prioritize proven solutions used in previous ship builds or solutions from suppliers. Rediscovering proven methods, such as should-cost analysis and collaborative approaches (combining technical savings and cost breakdown analysis), can help to reduce component costs by 7-34%. Even the naval sector, where the supplier base is assumed to be smaller due to sourcing restrictions, has significant potential for design-to-cost methods.

Roland Berger offers a 360° cost-out sprint for automotive OEMs and suppliers that can be adapted for shipbuilders; contact us for more details.

Refocus on customer centricity

Prioritizing total customer centricity will be a critical success factor in the coming years. Two steps are necessary for this. First, shipbuilders must ensure that they understand customers key purchasing criteria and preferences along the journey from first-time buy to maintenance and repurchase, as well as future trends and technologies. Second, only by effectively managing omni-channels (such as direct sales, digital communication, distribution, etc.) can shipbuilders achieve lasting customer satisfaction and loyalty, and therefore sales growth.

In addition, customer strategies have to help to optimize companies’ cost-to-serve, and therefore the competitiveness of sales organizations. The customer-centric approach is especially relevant in the high CAPEX, highly competitive shipbuilding business. Operators tend to award contracts for series of ships, such as cruise liners or large naval programs, and there is no later opportunity to capture business.

Enhance your digital and AI potential

The foundation of any resilience journey is a robust ERP system that enables the organization to make informed decisions based on digitalized operational and strategic planning processes. We recommend any shipbuilder without a robust ERP system to start the journey and create their IT backbone.

Productivity gains must be addressed in parallel. Over the past two years, use cases have evolved in the industry, demonstrating concrete day-to-day efficiency gains across all functions. For example, in procurement, using AI tools to compare supplier quotes avoids days of tedious Excel work, and supplier document analyzers can achieve time savings of 70-80%.

Develop a strategic workforce management plan

Shipbuilders need a strategic workforce management plan in place to identify upcoming supply gaps and ensure the right demand model to onboard skilled workers. This requires organizational transparency of roles and skills, as well as extrapolation of the natural development of the workforce based on selected parameters. For example how will AI and more use of Robotics and automation at the shipyard have an influence. Also necessary is a clear understanding of internal and external drivers, and global and local workforce market trends. Action plans can be derived on this basis to address short-term and long-term needs.

A workforce plan is particularly important in regions where new capacities need to be ramped-up quickly. These include the commercial shipbuilding industry in the US, and European countries where naval vessels are built in higher numbers and with shorter lead times.

Shipbuilders must also remember that they are in competition for talent and workforce build-up with other industries, and often compete in regional focus areas such as shore lines where the shipyards are located

Next steps: How to make resilience work for you

Opportunity knocks for resilient shipbuilders. While geopolitical and supply chain risks in the industry demand heightened flexibility and potential mitigation, strong and proactive players that move quickly to build up resilience will be well-placed to reap the benefits of predicted growth. In short, they need to be able to control what they can control to balance their CAPEX heavy long-term industry with the current range of risks. Our resilience levers will ensure they can do exactly that.

Roland Berger has extensive experience in the shipbuilding industry. Combined with our toolbox of effective, resilience-building products, we enable clients to mitigate industry risks and harness growth opportunities. The results are simple – resilient companies with heightened performance and competitiveness that are fit for a successful future. For more information, please get in touch with one of our experts.