Chapter 213: Cost

Everyone carefully inspected every detail of the module and found no obvious issues.

They soon moved on to the topic of shipbuilding costs.

Yino, a hull engineer at the shipyard, chuckled and joked, "If this technology is successful, we won’t need to hire as many technicians when we expand our production capacity in the future."

"Of course," Huang Weida replied with a smile. "Otherwise, the company wouldn’t be placing so much importance on this technology."

The single-piece hull manufacturing technology they were looking at was, in fact, a variation of biosynthetic material technology.

The process used prefabricated modular templates to quickly form the ship’s hull outline. A special plastic waterproof liner was laid inside the template’s shell. Then, a continuous infusion of nutrient fluid, metal ion solution, hormones, and pheromones allowed the material to grow on its own along the shell.

They had previously tested a transport ship in the 20,000-ton displacement class. This current experimental vessel was an 80,000-ton, 6,500 TEU standard container ship.

Yino asked, "What’s the current international price quote?"

A cost engineer replied, "Mitsubishi Heavy Industries quotes 15,000 US Dollars per TEU. Samsung Heavy Industries, Hyundai Heavy Industries, and Daewoo Shipbuilding are at 14,600 US Dollars per TEU, and China Shipbuilding Heavy Industry is at 14,200 US Dollars per TEU."

Yino raised an eyebrow. "So, you’re saying their costs are around 13,000 to 14,000 US Dollars per TEU?"

"That’s right. For older, low-priced orders, they’d actually be losing money based on current costs."

Huang Weida, curious about their own company’s production costs, asked, "What about our costs?"

"With the old process, we only really have a cost advantage on dual-use transport ships," the cost engineer explained. "For other vessels, our shipbuilding costs are only about 7-8% lower than other companies."

Huang Weida pressed, "So how much can the new process bring costs down?"

The cost engineer thought for a moment before replying, "We’re still evaluating it, but a rough estimate would be a reduction of around 50%!"

"That much?" Huang Weida was stunned.

According to statistics from international maritime organizations, the manufacturing costs for a civilian vessel break down as follows: 30% for labor, 25% for steel, 12% for the propulsion system, 12% for cabin and deck equipment, 6% for communication and navigation systems, 5% for electrical equipment, 5% for other ship-related support, and 5% for design and management.

This shows that labor, steel, the propulsion system, and cabin and deck equipment alone account for 79% of the total shipbuilding cost.

The construction of large ships requires enormous amounts of both steel and labor.

A shipyard’s profit margin is typically 5-10% of the construction cost, added on top to create the contract price. This makes the contract price 105-110% of the total cost.

Labor costs are manageable, as employee wages don’t fluctuate significantly.

The price of steel, however, is a major problem.

Suppose Shipyard A accepts an order in January. When calculating costs, steel is priced at 600 US Dollars per ton. By July, however, the price of steel has soared to 900 US Dollars per ton.

This means the total cost would increase by around 12.5%, reaching 112.5% of the original estimate. At this point, the order would result in a loss of at least 2.5% to 7.5%.

Of course, sometimes a contract is signed when steel prices are high, and if prices fall during construction, the shipyard can earn a higher profit.

The problem is, shipping companies aren’t fools. They assess the market price of steel as well.

Unless it’s a highly sought-after vessel like an LNG carrier, shipping companies tend to place orders for standard container ships, bulk carriers, ro-ro ships, and oil tankers when steel prices are in a slump.

Currently, the world’s three major shipbuilding nations are locked in a state of vicious competition, constantly undercutting each other to win orders.

For orders of the same class and type of vessel, quotes from Huaguo shipyards are often lower than those from South Korean and East Japanese companies.

Take a 174,000-cubic-meter (approximately 100,000 deadweight tons) LNG carrier, for example.

Samsung Heavy Industries would quote around 250 million US Dollars, with a profit of about 12.5 million US Dollars. Meanwhile, a Huaguo shipyard would typically quote 240 million US Dollars. Even with slightly cheaper labor and steel, their profit would only be around 10 million US Dollars.

This vicious competition means that the slightest fluctuation in steel costs can force a shipyard to take a loss.

They build tens of millions of tons of shipping a year, but the entire industry’s total profit is only a little over a billion US Dollars. That is the predicament the shipbuilding industry currently faces.

The truth is, the three major shipbuilding nations of East Asia know this can’t continue, but they can’t stop. They’re forced to race to the bottom, continuing this cutthroat competition until the other two are wiped out. Only then can the winner monopolize the entire industry and end this vicious cycle.

So what is Luzon, currently the world’s fourth-largest shipbuilding nation, to do in this situation?

It can’t really change the current situation; it can only join the rat race.

Fortunately, New Luzon Shipbuilding Company has the full backing of the Homo Sapiens Company, and with it, the advantage of various new technologies.

The cost engineer gave the group a rough explanation:

"By adopting single-piece hull manufacturing, we can reduce raw material waste by 10-25%. Furthermore, our hull material is a silicon-aluminum steel, bringing material costs down to about 40% of the original. Labor costs are around 33% of the original. And our propulsion systems are now produced entirely in-house, costing about 75% of what they used to."

Huang Weida, Yino, and the others were all good with numbers. They did some quick mental math and understood the general picture.

Taking the costs of the major East Asian shipyards as a baseline...

...New Luzon Shipyard’s costs would be: 10% for labor, 10% for materials, 9% for the propulsion system, and 21% for other expenses.

This brings their total cost to about 50% of that of the major East Asian shipyards.

And that’s while still leaving a sufficient profit margin for their sister companies. Otherwise, the cost could be pushed down by another 10% or so.

In other words, for Samsung Heavy Industries to build a 6,500 TEU container ship, the cost would be around 84.5 million US Dollars.

Meanwhile, for the New Luzon Shipbuilding Company to build the same 6,500 TEU container ship, the cost is only about 42.25 million US Dollars.

The disparity was clearly horrifying.

The cost engineer said with a smile, "Actually, everyone is forgetting another one of our company’s advantages."

"Another advantage?" Huang Weida didn’t immediately catch on.

"Our construction speed," the cost engineer prompted.

It dawned on everyone in the room.

The New Luzon Shipyard’s construction speed was indeed incredibly fast—one could even call it godlike.

Take the 6,500 TEU container ship in front of them, for example. Using the new process, the hull alone could be finished in about two months.

After that would come the secondary adjustments to the internal compartments, installation of the gas turbine, construction of the superstructure, installation of ancillary equipment, and finally, the outfitting.

The entire ship could likely be built in 130 to 140 days.

For other shipyards that often took one or two years to build a large vessel, this speed was a complete and utter rout.

Unit cost was only around 50%, and unit construction time was less than half.

When all the advantages the New Luzon Shipbuilding Company had accumulated were added together, the difference became even more stark.

"Technology truly is the number one productive force," Huang Weida remarked with feeling.

Yino turned and asked, "Designer Huang, I heard the Ship Design Center is also planning to add some energy-saving features?"

Huang Weida nodded. "Yes, we’re looking into it. We won’t be testing it on this experimental vessel, though. It’ll most likely be on the next one."

"What kind of features?" another engineer asked curiously.

Huang Weida didn’t hold back, giving the group a brief overview of several of the energy-saving proposals.