IBISWorld: Global Military Shipbuilding and Submarines Industry Report

Despite the massive effect of the global recession on builders of commercial aircraft and ships, companies primarily involved in the building of their military equivalents fared considerably better. The national security considerations of governments and long-term planning undertaken for military expenditure have ensured that revenue for the Global Military Shipbuilding and Submarines industry has been relatively stable.

IBISWorld expects that industry revenue will increase at an annualized 1.2% in the five years through 2012 to reach $38.9 billion. “This growth is primarily attributed to the demand for military ships and boats to protect coastal waters and to expand and renew navy fleet sizes,” says IBISWorld industry analyst Antonio Danova. “The contributions to industry revenue are particularly strong from North America, Europe and North Asia.” Government military budget cuts are forecast to lead to slower revenue growth of 0.3% in 2012.

Profit margins have been relatively stable over the past five years, stemming from the contractual and long-term nature of ship builds. Nonetheless, profit margins declined slightly in the aftermath of the global downturn. Customer countries burdened with high levels of government debt started cutting defense spending, which put pressure on industry margins. “The Global Military Shipbuilding and Submarines industry was able to reclaim previous profitability levels through capacity cuts,” adds Danova. “Profit margins are expected to remain stable over the next five years due to the stability of military demand and naval spending.”

The industry has a medium level of market share concentration; the primary reasons for this concentration are the relatively high barriers to entry and a few buyers dominating the market. For example, the dominant buyer, the US Department of Defense, accounts for about half of worldwide naval product purchases. Other large markets include Europe, the Middle East and Asia. In addition, the costs associated with manufacturing military ships, boats and components are very high. Therefore, customers usually award contracts to existing players with proven experience, such as major companies General Dynamics Corporation, Huntington Ingalls Industries, Direction des Construction Navales and Thales Group. Concentration is expected to remain at this level as significant research and development is required to develop new products and innovation in the defense area.

Revenue is projected to continue growing in the five years through 2017. The increase in revenue will stem from stable growth in defense budgets, particularly in the United States, and a focus on advanced electronics and information systems capabilities. An increase in naval manufacturing in emerging countries is also anticipated.

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Press Release, February 8, 2013