Poland at sea as German shipyards sail into profit

Dockyards in two former communist lands have taken opposing courses. Poland’s conservative government, whose leaders have their political roots in the Solidarity union, are determined not to let the industry die.

Three towering crosses in front of the gates to the Gdansk shipyard symbolise the free trade union uprising that helped to topple communist rule in Poland.

The Polish government is determined that the country's shipbuilding industry be more than a memorial to Lech Walesa and the Solidarity trade union. But unlike the German government, which pumped in capital to restructure uncompetitive shipyards in the former communist east, the Polish government has failed to modernise its industry and place it on a sound financial footing.

Employment at the Polish yards has plummeted from about 50,000 in 1990 to fewer than 16,000; Poland's share of the global shipbuilding market has dropped from 4 per cent to 1.6 per cent.

Shipbuilding, a mainstay of the communist-era economy and at the time one of the country's few export industries, has gone through tough times. Two of the three biggest yards, Gdansk and Szczecin, were put in private hands but renationalised after going bankrupt. The third, Gdynia, is groaning under debt of more than 800m zlotys ($257m, E202m, £136m).

Evidence of the lack of investment can be seen in the 8ha main construction building in Gdansk, where most work is still done by hand. Shortage of capital means the yards cannot expand production to take advantage of global demand. The Gdansk shipyard, which has the capacity to build 10 ships, is working on only four.

"While the shipbuilding business in the whole world is flourishing, in Poland it is in a crisis," says Andrzej Buczkowski, the Gdansk yard's general manager.

"This yard is producing too little and not the right product but it can be saved," he says. "We now have a seller's market that could still last a couple of years. If we use the next two years sensibly we could turn the yard around."

Poland's conservative government, whose leaders have their political roots in the Solidarity union, are determined not to let the industry die.

However, the European Commission is investigating state aid to Poland's three main shipyards, totalling E380m as well as an additional E1.3bn in export guarantees.

If the Commission rules that the aid must be repaid, Poland's shipbuilding sector could be sunk.

In order to give the Polish yards a fighting chance, the government has to persuade Brussels that it has a viable restructuring plan and that it can find private investors willing to inject capital.

That is exactly what Germany did and today a few hundred kilometres west of Gdansk, the gleaming Wismar dry dock of Aker Yards Germany is a monument to the successful reinvention of the East German shipbuilding industry.

When East Germany and West Germany were reunified 16 years ago the industry had the same problems as Gdansk. Overstaffed, unproductive, crippled by underinvestment and forced to halt work on Soviet orders because their clients' currency had becomes worthless, Wismar and East Germany's four other shipyards seemed destined for bankruptcy.

"In 1990 the East German yards had 60,000 people," says Thorsten Ludwig, a shipbuilding expert at Bremen University. "Today, only 19,000 are left. The restructuring was radical."

But it worked. Now in the hands of Norway's Aker Yards, Wismar and its sister facility in Warnemünde are solidly profitable. Although their headcount is down 10,000 to just 2,254, their combined output comfortably exceeds that of their communist days.

With strong demand for merchant vessels, the company's main problem is a shortage of top-level engineers.

Matthias Trott, a spokesman, is confident that the yards' E30m-a-year research and development budgets, their focus on quality, technology, and punctuality, can sustain the formidable competition from their cheaper Asian rivals.

"We build only container ships now. But the future lies in specialised vessels," he says, "gas tankers, tankers for chemicals or hazardous substances, patented ice-breaking cargo ships, etcetera."

The successful rebirth of East Germany's communist era shipyards was the result of a finely calibrated combination of laissez-faire capitalism and state intervention.

When it inherited the shipyards upon reunification, the German government decided that they would be privatised immediately but the restructuring would be financed by the state. Brussels imposed a strict cap on the shipyards' production capacities to limit in exchange for its approval of the plan. Of the DM575m ($367m, E289m, £230m) that poured into Warnemünde from 1992 to 1995, the bulk came from the state. Kvaerner, the site's first private owner, provided only DM100m. Between 1994 and its acquisition by Aker Yards in 1998, Wismar obtained DM605m ($376m, E310m, £235m) in federal funds.

"The capacity limitation was a problem," says Hendrik Redetzke, quality manager at Aker Yards Germany.

"We had massive productivity gains that could not be transformed into more production. We had to refuse contracts and lay off people essentially because of the state aid."

Tax money is no longer flowing into the two shipyards today. But it would not be needed. The production cap was lifted last year and Aker Yards Germany can hardly keep up with demand. The prosperous state of the German yards are a distant dream for their Polish counterparts, who are now spending as much timeworrying about the Commission as looking for new customers.

But with a government that has its roots in the Solidarity labour union, Poland will not give up its historic shipyards without a fight.

Source:By von Jan Cienski and Bertrand Benoit , ftd.de ,