(c) crown copyright
Catalogue Reference:CAB/129/149
Image Reference:0014
DOCUMENT IS THE PROPERTY OF HER BRITANNIC MAJESTY*S GOVERNMENT
63
C(70) 54
COPY NO
28 A p r i l 1970 CABINET SITUATION IN THE SHIPBUILDING INDUSTRY
Memorandum by the P a y m a s t e r G e n e r a l
In v i e w of the c u r r e n t public i n t e r e s t in the shipbuilding i n d u s t r y ,
my c o l l e a g u e s w i l l v/ish to have m y a s s e s s m e n t of the p r e s e n t p o s i t i o n .
BACKGROUND
2.
F o l l o w i n g the report of the Geddes C o m m i t t e e published in'
March 1966, the Shipbuilding Industry Act w a s p a s s e d in June 1967,
set up the Shipbuilding Industry Board (SIB) w h i c h under the Act a s
amended w a s authorised to m a k e
i.
g r a n t s of up t o £ 2 0 m i l l i o n
ii.
l o a n s (or equity i n v e s t m e n t s ) of u p to £ 3 2 f m i l l i o n
This
The M i n i s t e r w a s a l s o a u t h o r i s e d , subject to SIB r e c o m m e n d a t i o n , t o
guarantee bank l o a n s for United Kingdom s h i p o r d e r s placed w i t h
United Kingdom yards up to a total of £ 4 0 0 m i l l i o n .
Anneir A s h o w s the
expenditure and c o m m i t m e n t s of SIB grants and l o a n s .
3,
During 1966-67 the w o r l d new o r d e r s r o s e f r o m 18 to 22 m i l l i o n
g r o s s tons a s c o m p a r e d w i t h an a v e r a g e of 10 m i l l i o n g r o s s tons in the f i r s t
half of the 1 9 6 0 s , but the B r i t i s h industry w a s being p r i c e d out of the
market and obtained only a s m a l l proportion of new world o r d e r s ­
2 . 2 p e r cent in 1966 and 5 p e r cent In 1967.
Orders in 1967 included
however f i v e giant t a n k e r s and two container s h i p s , the e a r l i e s t of w h i c h
will not be d e l i v e r e d until l a t e r this y e a r .
4.
In 1968-69 the industry w a s able to build up its order book and
obtained, in tonnage t e r m s , 9 . 8 p e r cent of new w o r l d o r d e r s in 1968 and
7 per cent in 1969.
The B r i t i s h o r d e r book at the end of 1969 amounted to
£600 m i l l i o n of m e r c h a n t ships and £ 2 0 0 m i l l i o n of h o m e and o v e r s e a s
orders f o r naval v e s s e l s .
1
5.
B e c a u s e , e v e n when order books a r e l o w , a v e s s e l i s not usually­
completed and d e l i v e r e d f o r two y e a r s , the output amounted to only
one m i l l i o n g r o s s tons in 1968 and 0. 8 m i l l i o n g r o s s tons in 1969.
Output
is e x p e c t e d to r i s e to 1, 5 m i l l i o n g r o s s tons in 1970 and h i g h e r s t i l l in 1971,
reflecting the influx of o r d e r s in 1 9 6 8 - 6 9 .
PRESENT FINANCIAL DIFFICULTIES
6.
The poor f i n a n c i a l r e s u l t s now appearing f r o m the shipbuilding
companies i s m a i n l y attributable to the following f a c t o r s ;
i.
P r o d u c t i v i t y h a s g r o w n l e s s q u i c k l y than h o p e d ,
i i . Ships a r e built on fixed p r i c e c o n t r a c t s and the industry h a s
t h e r e f o r e been p l a c e d in great difficulty by the c o n s i d e r a b l e i n c r e a s e s
in w a g e s and the c o s t of m a t e r i a l s and components for w h i c h it often
cannot obtain fixed p r i c e s at the t i m e t e n d e r s for s h i p s a r e taken.
i i i . It i s now the usual accounting p r a c t i c e to make p r o v i s i o n f o r any
future l o s s e s e x p e c t e d on e x i s t i n g c o n t r a c t s .
INDIVIDUAL COMPANIES
7*
Annex B s u m m a r i s e s the o r d e r book, e m p l o y m e n t and turnover
of the m a i n shipbuilding c o m p a n i e s ,
8,
Annex C s h o w s the l a t e s t e s t i m a t e of the financial p o s i t i o n of t h e s e
companies in three c a t e g o r i e s ? ­
a. T h o s e which are in known difficulty and c l e a r l y have no r e s e r v e s
to m e e t the p r o b l e m .
b . Two s m a l l b u i l d e r s who have s p e c i a l i s e d and a r e e a r n i n g good
profits.
c. Companies caught with long o r d e r books and s o m e l o s s e s in p r o s p e c t and w h o s e a b i l i t y to ride out the p r o b l e m is not c e r t a i n . POSITION ABROAD
9.
Long order books and r i s i n g c o s t s have produced s i m i l a r difficulties
abroad, and one of the two m a j o r Dutch c o m p a n i e s ( V e r o l m e ) h a s had to be
rescued by the N e t h e r l a n d s G o v e r n m e n t ,
In s o m e c o u n t r i e s the impact i s
l e s s b e c a u s e the "home m a r k e t " i s r e s e r v e d to the national shipbuilding
industry. F o r e x a m p l e , the Japanese h a v e a h o m e shipbuilding p r o g r a m m e
of 2 - 3 m i l l i o n g r o s s tons a y e a r and support this c o n s t r u c t i o n p r o g r a m m e
in their own yards b y credit on t e r m s m o r e favourable than the
internationally a g r e e d m i n i m u m export c r e d i t rate for s h i p s .
The
European E c o n o m i c Community (EEC) a l l o w s shipbuilding s u b s i d i e s of up
2 to 10 per c e n t ; Italy g i v e s m o r e , while F r a n c e not only s u b s i d i s e s at the
agreed EEC rate but a l s o o p e r a t e s a s c h e m e by which s h i p b u i l d e r s a r e
able to i n s u r e against the effect of c o s t e s c a l a t i o n .
A l a r g e number of
other c o u n t r i e s r e s t r i c t ship p u r c h a s e s abroad and give l a r g e s u b s i d i e s
(for e x a m p l e USA, Canada, A u s t r a l i a , South A f r i c a , G r e e c e and Spain,
as w e l l a s m a n y C o m m u n i s t c o u n t r i e s ) .
Sweden h a s supported h e r
shipbuilding industry by w a y of l i m i t e d c r e d i t s , and the f a c t that h e r m a i n
yards have b e e n c o n s t r u c t e d o r r e - e q u i p p e d in r e c e n t y e a r s to s p e c i a l i s e
in tankers and l a r g e bulk c a r r i e r s h a s put them in a r e l a t i v e l y favourable
position, although profits have been v e r y low.
PROSPECTS
10.
It i s p o s s i b l e that the p r e s e n t s e r i e s of bad f i n a n c i a l s t a t e m e n t s
represent the bottom cf a trough, although confidence could be further
sapped when the poor Swan Hunter r e s u l t s a r e published shortly-.
Favourable f a c t o r s include the benefits of s p e c i a l i s a t i o n and r e - e q u i p m e n t
gradually a p p e a r i n g , the working through of older o r d e r s which made
insufficient p r o v i s i o n f o r receixt c o s t i n c r e a s e s ; and the p o s s i b l e profits on
other o r d e r s which have yet to be brought in to the a c c o u n t s .
But t h e s e
factors could be offset if there are further i n c r e a s e s in labour or other
c o s t s , if productivity f a i l s t o i m p r o v e or if the r e d u n d a n c i e s n e c e s s a r y in
certain a r e a s ( e . g . Upper Clyde and Birkenhead) a r e not c a r r i e d through
quickly.
SHIP REPAIRING INDUSTRY
11.
Ship r e p a i r i n g w a s not c o v e r e d by the Geddes R e p o r t or the
Shipbuilding Industry A c t .
There h a s b e e n a g e n e r a l w o r l d d e c l i n e in
demand for ship r e p a i r i n g and the United Kingdom, p a r t l y for g e o g r a p h i c a l
r e a s o n s , i s not w e l l placed to m a i n t a i n its share of the m a r k e t .
(The
announcement l a s t w e e k that the P a l m e r s yard at He bourn, owned by
V i c k e r s , would c l o s e i s attributable to this g e n e r a l p r o b l e m ) .
Repair
yards are often under s e p a r a t e o w n e r s h i p and e v e n w h e n dwned by
shipbuilders a r e u s u a l l y s e p a r a t e l y m a n a g e d .
T h e y have traditionally
been c a s u a l e m p l o y e r s in the port a r e a s , but the p o s i t i o n i s changing.
To avoid giving £ a l l - b a c k pay when there is no w o r k , s o m e r e p a i r e r s a r e
said to be taking b u s i n e s s at below c o s t .
The Shipbuilding and Ship
Repairing C o u n c i l , c o n s i s t i n g of the SIB and r e p r e s e n t a t i v e s of m a n a g e m e n t
and unions in t h e s e i n d u s t r i e s , is at p r e s e n t c o n s i d e r i n g the p r o b l e m s and
p r o s p e c t s of s h i p r e p a i r i n g .
ACTION BEING TAKEN
12.
The Shipbuilding Industry B i l l which i s to have its Second Reading
on 30 A p r i l , w i l l r a i s e the l i m i t on g u a r a n t e e s f o r the financing of
United Kingdom o r d e r s to £ 6 0 0 million,,
B e c a u s e the SIB a r e s t a t u t o r i l y
concerned with the a d m i n i s t r a t i o n of the guarantee s c h e m e , and b e c a u s e it
would be awkward at this time t o announce its d i s s o l u t i o n at the end of 1970,
the Minister of T e c h n o l o g y p r o p o s e s to u s e h i s p o w e r s under the Shipbuilding
Industry A c t , 1957, to prolong the SIB*s life by one y e a r .
3
13.
My c o l l e a g u e s w i l l a l r e a d y be aware of the s p e c i a l p r o b l e m s of
Upper Clyde Shipbuilders and C a m m e l l L a i r d .
F o r the r e s t , l a m
d i s c u s s i n g with the SIB how the r e m a i n i n g funds available to t h e m under the
Shipbuilding Industry A c t can b e s t be u s e d t o s e c u r e both the i m m e d i a t e
and l o n g e r t e r m i m p r o v e m e n t of the i n d u s t r y ^ p o s i t i o n with p a r t i c u l a r
I shall of c o u r s e k e e p m y
attention to Swan Hunter and Harland and Wolff,
c o l l e a g u e s informed of the o u t c o m e ,
14.
Meanwhile for the l o n g e r t e r m , the M i n i s t r y of T e c h n o l o g y w i l l ,
in the light of the p r e s e n t d i s c u s s i o n s in the Organisation for E c o n o m i c
C o - o p e r a t i o n and D e v e l o p m e n t Shipbuilding Working P a r t y about both
credit and other f o r m s of G o v e r n m e n t a s s i s t a n c e to shipbuilding, study
the i m p l i c a t i o n s of the c u r r e n t d e v e l o p m e n t s in the industry f o r future
Government p o l i c y when the SIB c o m e s t o the end of its statutory l i f e .
HL
Ministry of Technology SW1
28 April 1970
4 ASSISTANCE
OF
Grants
(Section 3 )
-
THE
UNDER
SHIPBUILDING-
SECTIONS
5,
h
INDUSTRY
ACT,
&
6
I967
£million
Total available
Already Paid
20
Firmly Committed
1.867
11.253
Balance 6.880
Against this balance, proposals by the SIE to give grants totalling £l.h m. to
Scott Lithgov/ and £.089 m. to Vosper Ltd. are under consideration. Prom the £5.h m.
remaining Cammell Laird, Harland & Wolff and Swan Hunter, have all approached the SIB
seeking substantial financial support. There is also the possibility of applications
from other firms in the shipbuilding and engine building industries.
Loans
(Section k) and Share Subscription (Section 6)
Total available
32.5
­
£million
Already Paid
Firmly Committed
16.055
(including £ 3 m. share
subscription s UCS)
0.1450
Balance
15.995
Against this balance, we are currently considering proposals by the SIB to lend
up to £ 2 . 3 m. to Scott Lithgow. UCS hope to obtain a further £ 1 m. for capital equipment
but it is unlikely that this loan will be made until they have demonstrated that they
are on the road to viability. The balance should be more than adequate to meet any
foreseeable proposals for loan assistance by the SIB during the remainder of their life.
Ministry of Technology, S.W.1.
28th April, 1 9 7 0
Shipbuilding
Employment
March 1970
Company
10,254
UCS Group
( 2 )
Turnover
£
m.
22
Order
Decembe
December
r
£ m.
Book
IS69
IS69
70(D
(inc.Yarrow)
Yarrow Shipbuilding
2,954
-
50 (all
S I B Grants
paid or
committed
£
m.
6.1
SIB
Loans
etc
paid or
committed
£ m.
7.7
-
­
naval)
Cammell Laird
Shipbuilders & Engineers
7,925
6,216
23
N/A
65
NIL
NIL
Harland & Wolff
80 2.5
8.0
Austi
Austin
n & Pickersgill
Pickersgil l Bartra
Bartram
m Group
Grou p 2,509
12
25
NIL
NIL
6
NIL
0.25
Q
NIL
z
NIL
u
Appledore 581
2.5
62
210
16.8
60
Robb Caledon 4,695
1,810
5.05
0.02
4
10
NIL
0.4
Scott Lithgow
4,347
N/A
95
NIL
NIL
Vickers
7,303
N/A
90(all
naval)
NIL
NIL
N/A
15
NIL
NIL
Swan Hunter Group
19,036
Doxford & Sunderland Ltd.
*
Brooke i-arine
1,127
Notes: (l) Includes ships where completion is well overdue. ( 2 ) Turnover is based on figure for year covered by last
annual accounts and may not reflect current average turnover
P"
z
0
Category 'A'
Published, pretax
proflt/]oss X T
Period of Accounts
(10)
UCS Group
Harland & Wolff
(3.7) Caramell Laird 1.35 l
Septol967-Aug. 1968
Forecast.
Government hopes that present assistance
w i l l enable group to he viable after
redundancy programme has been carried through
1969 No reason to believe that a collapse of
the Company is imminent. Company are
currently discussing possible further aid
with SIB.
1968
Shipbuilding Company expects £ 1 0 m. loss.
Future of Cammell Laird Group discussed in
SEP(70)50.
t
Category B
Austin & Pickers­
gill and Bartrams Group 1.8
Appledore 0.25
June 1 9 6 8 June 1969
Should continue to do well. hZ
UJ
Category
t
Q
Sept.68­
Sept.69
ti
H
11
11
C Swan Hunter Group
Z
1.6 of which
shipbuilding
Robb Caledon Gp.
Foreseen shipbuilding losses of £ 4 . 7 m.
likely to result in group loss of £k m.
in accounts due soon.
1.6
(0.238)
Scott Lithgow Gp.
N.A.
Brooke Marine
N.A.
Vickers Barrow
N.A.
o
u
1968 0.2
Doxford & Sunder­
land Group J£
March 6 8 - 6 9
Chairman this month forecast profit to
March 1970 as substantially lower and
provision will have to be made for losses
expected in 1971 and 1972 partly due to
5 week strike still continuing.
March 6 8 - 6 9
Company have reported to SIB that loss
from March 1969 to Sept.1969 was £514, 0 0 0 .
No information but Company still confidently
pressing for its new equipment programme. Thought to be making losses. No
information.