A producer and distributor of bulk carriers, tankers and cargo ships, which also provides repair and design services, Onomichi Dockyard was established in 1943 and recently celebrated 81 years in the shipbuilding industry.
China has become the dominant force when it comes to shipbuilding, leading the global new building order book for container ships, carriers, as well as bulkers, and tankers, but Japanese shipyards still play a role and account for about 20% of new orders. However, experts are anticipating a decrease in new orders in 2024 due to a backlog and decreased availability at tier-one shipyards in China, Korea and Japan, with the earliest delivery dates being around 2027. How do these developments in the shipbuilding sector affect your firm?
We sort of predicted this rise of the Chinese shipyards more than ten years ago, but at the same time China, Korea, and Japan dominate more than 90% of the commercial ship building capacity. These three nations are all also facing an aging problem at almost the same speed. We are looking at a situation where many experts from these nations will age out of this industry, and at the same time, there aren’t enough young people interested in heavy industries. I’m not sure who is going to build vessels in the future and this is quite a big problem.
Up until now, shipping companies have requested shipyards to build vessels in a similar way that you place an order for automobiles. Basically, once an order is placed a projected delivery date is given. After around 2030 it is not going to be like this anymore. Shipyards like mine have already reduced their building capacity and we are no different, having previously announced that we’ve reduced our building capacity. Korean companies like Hyundai Heavy are still trying to keep their big capacity, but that is a huge company, huge like a dinosaur. If I punch a dinosaur, it is going to take a few minutes for that dinosaur to feel the impact. The big difference with Korea is that they welcome so many foreign workers, and the same cannot be said of Japan. Some Japanese people haven’t even seen the sea before. I think we are not only going to see delivery delays of the vessel from shipyards, I think moving forward those delays are going to increase in frequency and length. The key to moving forward is noticing that the building capacity is decreasing, and in the case of Korea, I think they are in denial that this is the case. Eventually, you have to accept reality.
One of the difficulties with this shrinking labor force is technical transfer and skill inheritance. When it comes to your maintenance services, your work is very complex with many components such as propellers and engines, and there is a need to pass on knowledge about these maintenance services otherwise there will be issues in the generations to come. As one way to combat this many Japanese companies are looking to hire foreign workers to pass their technical knowledge on. Is this an area of interest for your firm as well?
To be honest, I’m not sure right now. Of course, this kind of work is not easy, not only in my shipyard but with many manufacturing companies across Japan with varied disciplines. We have invited certain numbers of foreign workers, but because of the regulations, it is difficult to hand such jobs over to foreigners. The Japanese government doesn’t want to recognize sometimes that they are workers, instead thinking that they are simply trainees. What they are now considered as is not quite on the level of a migrant worker, and although we don’t think this classification is fair, we have to accept that this is the government’s decision and that they have designated certain business fields that foreigners can and can’t work in. Maybe step-by-step in the future this will change, and frankly, it has to change. Knowledge and experience have to be transferred somewhere, and if there aren’t enough Japanese people willing to learn, then it will have to be foreign workers.
I’m the director of the Shipbuilder’s Association of Japan, and we have had discussions about foreign workers recently. We have a committee and I’m the chairman of that committee, and this is why I’ve been invited so many times to talk to politicians or bureaucrats to recommend policies and regulations. In fact, just recently I had three meetings about this exact topic. To be honest, all sorts of industries are facing this technical inheritance issue, not just shipbuilding.
Within the next 10 years, it is predicted that we are going to lose around 20% of our workers due to age, so you can understand that it is a serious problem. The speed at which we are losing people to age is so fast, therefore there is a need to quickly educate people to replace those who are aging out. Realistically we have to educate those foreign workers within five years or we can’t maintain the system. I think, if this problem was isolated to just shipbuilding this wouldn’t be such a priority, but with this aging problem affecting all sectors and all industries here in Japan, something has to be done as soon as possible. Not many young people are entering our industry in comparison to IT industries or other tech fields. The thing about those tech fields, however, is that they can’t stand alone, whereas heavy industries like ours are supporting social structures. How would those office workers get to work without transportation or maintenance firms? Unfortunately, the truth of the matter is that young people just don’t understand this point of view.
Your company deals with the maintenance of medium speed engines as well as variable pitch propellers as well. Can you go into detail about how your services can address some of these challenges when it comes to medium-speed engines and variable-pitch propellers?
This is quite a difficult question since ordinary people consider diesel engines as not good for the environment. But, almost 100% of the vessels we deal with and in this industry are driven by these engines. I think we are going to be maintaining these kinds of diesel engines for at least 10 or 20 years from now. At the same time, shipyards like ours need to think about new types of fuel and ways to reduce CO2. There are new types of fuels out there but right now we don’t have any maintenance methods established. These renewable sources such as methanol, ammonia, and hydrogen, are quite difficult to produce. This is especially true when you compare fossil fuels. In Europe in particular, they seem to ignore the fact that diesel is used with large vessels and try to force everyone and everything to convert over to new fuel types before a lot of the small details have been figured out.
Take hydrogen as an example, there are many concerns about its usage since it is so flammable. What are your takes on some of these alternative fuels and the roadblocks in terms of adopting them?
If a shipping company currently uses a diesel engine then we can provide maintenance services for at least 10 years, probably longer. Unfortunately, since there is so much pressure, even the shipping industry is going to have to have serious talks about adopting alternative fuels in the near future.
There are targets set by world governments for the reduction of CO2, and I think in Japan the target of 2040 must see a 70% reduction of greenhouse gasses compared to 2008. In fact, 2030 has a target of 25%, which is only six years from now. For example, if the shipping industry started using bio-green methanol, it would mean preparing 126 million tonnes of bio-green methanol in order to reduce 25% of greenhouse gasses from the shipping industry. Could you imagine the same amount for the whole world’s consumption? Currently, only 1 million tonnes of green methanol is available worldwide right now, less than 1%, so I really don’t think that worldwide production capacity can be increased by over 100% in just six years. Methanol can only reduce 8% of CO2, so it isn’t really that great either.
In Europe, they have a plan to produce green methanol by using a 60 gigawatt wind turbine system, producing 2 million tonnes. How many wind turbines do you have to produce to generate 60 gigawatts? I can tell you it's a lot. One gigawatt is equal to 412 utility-scale wind turbines and is enough to power 110 million LED lights, so 60 gigawatts is going to be roughly 24,720 utility-scale wind turbines. One megawatt wind turbine consumes around 4,000 tonnes of steel, so think for a second how much steel you would need for 24,720 turbines. Additionally, out of that 4,000 tonnes, 8,000 tonnes of CO2 is produced. Finally, producing this much power is unrealistic, since the wind doesn’t blow all the time. I really think this whole situation is nonsense, and I would say that the conservation of compensation itself is a problem.
From this point of view, my company invested in a company called Core Power, which is a UK company that is currently planning on producing a floating nuclear power station. They are also looking to produce nuclear power for shipping. I agree with their conservation. There are two main types of nuclear power now, nuclear fission and nuclear fusion. Although fusion is a little further into the future, fission is quite realistic. We can minimize the size of the reactor and Core Power is planning a two-gigawatt plant for shipping. This two-gigawatt system is only 4,000 tonnes for the weight of the whole system. At the same time as this floating nuclear power plant, we are also planning a floating data center as well. This will be for cloud computing and AI applications since they are users of huge amounts of energy. If we can provide nuclear power to data centers we can help contribute to solving social issues of power usage.
Can you tell us a little bit more about this relationship you have with Core Power?
We’ve just purchased shares in the company. They are also working with TerraPower, a US company that has investment from Mr. Bill Gates. TerraPower is creating a new type of reactor and Core Power is trying to use this reactor. I proposed using this reactor for data centers. My aim is to connect the shipping business with the data center business to attract more young people to shipping.
Are you looking to invest in more overseas companies with similar technology, or possibly partner with them to develop new projects?
Yes, this is something we are keenly pursuing. It all comes down to getting the attention of the younger generation for me. This is the biggest problem of the last 10 years and there is a need to change our approach.
In addition to your investment in Core Power, you also began a collaborative project in October 2023 to develop a multi-purpose vessel powered by hydrogen. It is equipped with a large low-speed, two-stroke hydrogen fuel engine, and the plan is to undergo demonstration operations starting in 2028. Can you explain to us more the role that Onomichi is playing in this collaborative effort?
This project is driven by Japanese government subsidies, and it is quite a big project not only for Onomichi but other Japanese shipping companies. At the same time, using hydrogen is not an easy task, technically and cost-wise. I think we can build and deliver this vessel by 2027 or 2028, but commercially it might be quite difficult to operate this vessel in the current global situation. Hydrogen is very expensive as is the vessel itself. It’s like running a transportation business by using a Rolls-Royce. Even the insulation for the tanks is the same that JAXA uses for satellites. Right now this really is just a trial.
Looking at the government forecasts and policies, there are goals in place to reduce greenhouse gasses by 70% compared to 2008 by 2040. It is now 2024, so we have just 16 years left to achieve this goal and despite the approaching deadline, we are still producing normal commercial vessels. These types of vessels consume huge amounts of fuel and they are still going to be around in 2040 since the lifetime of these vessels is more than 20 years. The question now becomes, “ How do you reduce the fuel usage by 70%?” If we can build hydrogen vessels starting in 2028 more than 100% of our capacity will be spent. If you combine all countries, you are talking about a capacity of roughly 3,000 vessels a year. If you look at the grand total, around 80,000 vessels are traveling the seas of the globe, so converting all of those to hydrogen by 2040 is simply impossible. Additionally, these vessels cannot be retrofitted. Methanol and liquified natural gas (LNG) are both candidates, but they cannot reduce 100% of greenhouse gasses. Only hydrogen can reduce CO2. I think the key to attempting this in 2040 is to make hydrogen the global standard.
Hydrogen itself isn’t too expensive, but to store it as a liquid it has to be kept at -253 degrees Celsius, so transporting and storing liquid hydrogen requires so much electricity. Again this comes back to the idea of the floating nuclear power station. Using this we could produce the power necessary at a reduced cost, thus lowering the price of liquid hydrogen too. To summarize, if we can provide low-cost hydrogen through nuclear power I think that might be a good solution to our current predicament.
One trend we are seeing in the post-COVID world is the idea of diversification to reduce the risk inherent in countries like China for example. We know your firm has been present in Sri Lanka, which is an important shipping hub in Asia, connecting West Asia to the Middle East and the Far East with routes to Africa and Australia, however, we also know that Sri Lanka has given China a 99-year lease for the Hambantota Port. Based on this recent development, do you still consider Sri Lanka as a strategic location? Given your 30-year history in Sri Lanka, how has the country evolved as a nation over time?
This is also a very difficult yet critical question. Back in 1993, the Japanese government was supporting the activities of the dockyard and when they tried to go private in Sri Lanka we were able to take over their share. This is why we are now operating that shipyard.
In the beginning, it was a repair business and we started building the business further step-by-step. We started with small aluminum boats before working our way up to huge vessels. COVID-19 hit Sri Lanka hard and many businesses there faced bankruptcy. At this moment it is quite difficult to run a shipbuilding business there since they lost so much credit as a country.
Geographically, Sri Lanka is very important. Advanced nations are watching the shipyards in Sri Lanka very carefully. If a shipyard goes bankrupt countries like China are looking to step in and take over. It is not good, especially from a security point of view.
Imagine that we come back in 2033 and have this interview all over again. What goals or ambitions do you hope to achieve by the time we come back for that new interview?
I would say that I don’t have any goals right now. My job is to stabilize the company, so for such kinds of reasons I’m not too worried about the shipping market anymore. Shipping companies these days are worried about how to get hold of new vessels, and they recognize the supply side is shrinking.
Core Power and the data center project is something I’m thinking about a lot these days. I have to show proof that the concept works and innovation. There is innovation within the shipping industry, but that innovation is quite localized and considered quite minor. That is why very little has changed over the years. To attract young people we have to demonstrate innovation and bring new or exciting developments to the space. Young people understand data centers because they spend so much time with their phones. If people can understand how important my concept is for the future I will be very happy.
The timeline currently has testing in 2026 with commercial activities commencing in 2030. It isn’t far away and in 10 years the hope is that this will be fully operational.
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