Operating environment and market development
2010 contracting activity stronger than expected
The number of vessels contracted in 2010 represented an increase of 75% compared to the previous year. This was a much faster and more significant recovery than expected. The improvement was backed by a recovery in trade and ship owner earnings, as well as by attractive new building prices. A more positive outlook for ship financing, together with low interest rates, also contributed to the development. While the first half of the year was characterised by high contracting activity for bulk carriers, the second half saw a similar increase in contracting activity for container vessels and more specialised vessel types. The offshore segment continued strong throughout the year and demand was good especially for floating production units. In the fourth quarter demand for more specialised vessels was good.
Ship Power geographical markets - China the biggest market
As expected, the Asian shipbuilding market, and especially China, emerged stronger than earlier after the downturn. In 2010, China secured the majority of global new building orders, followed by Korea. Both Japan and Europe lost market share in 2010. Growing shipbuilding nations, such as Brazil, were active throughout the year and secured a good share of orders.
In 2010, Chinese ship owners were the most active, ordering more than 20% of all vessels ordered. German owners, traditionally strong in shipping, were slow in ordering whereas Greek owners continued to be active.
Ship Power market shares
Wärtsilä's market share in medium speed main engines increased from 32% at the end of the previous quarter to 42%. The company's market share in low speed main engines increased slightly to 13% (12). In auxiliary engines the market shares increased slightly to 4% (3).
Power Plants markets remain solid
The Power Plants market activity continued at a good level during the whole year. Industrial output is increasing in most emerging markets which, in combination with population growth and enhanced standard of living, is driving the need for more power generation. The installed base of wind power generation has also increased, which is creating a need for flexible power generation. The financial crisis led to the postponement of investments for power generation in 2009, and this is now creating demand in several markets.
Power generation market overview
As energy consumption grows, the need for both new power generation equipment increases, as does demand for replacement equipment for older capacity. Today, the global installed power generation capacity totals approximately 4,700 GW, out of which over half is in OECD-countries. Going forward, growth is expected to be stronger in non-OECD countries, due to increasing industrialization and higher living standards. The majority of Wärtsilä's Power Plants business derives from these emerging markets. Heavy fuel oil (HFO) has traditionally been the dominant fuel for power generation in emerging markets but demand for gas driven plants increases along with the introduction of gas networks. OECD-countries have focused on the development of wind power and increasing the share of natural gas power generation with the target to ramp down old coal based installations. In the USA, the introduction of shale gas has been rapid, and has made the natural gas prices very competitive. Wärtsilä is the only player in the market with such a broad gas engine portfolio within its power range.
Power Plants market position
The size of Wärtsilä's target markets is approximately 15,000 MW and Wärtsilä's yearly delivery volumes are 2,500-3,000 MW. The development of the heavy fuel oil driven power plants market, where Wärtsilä has a market share of over 50%, is rather stable whereas the market for gas driven power plants is growing. Wärtsilä has a market share of over 60% in the gas engine driven power plants. Wärtsilä is continuously strengthening its position in the gas market, by capturing market share from other technologies and currently has 14% of the market including both gas engines and gas turbines.
Marine service market focused on cost savings throughout the year
During 2010, the global economic downturn had its effect on the marine service market which focused strongly on cost savings. Marine customers, especially in the merchant segment continued to limit their maintenance and modernisation investments. A large number of ships were slow steaming which reduces maintenance and repair expenditures. At the end of the year, the amount of idled vessels had decreased to 6% from its peak of 10% at the beginning of 2010. The power plants service business was less affected by the downturn.
Wärtsilä's installed engine base in the Ship Power and Power Plants markets totals close to 180,000 MW and consists of thousands of installations distributed throughout the world. Both end markets consist of several customer segments for Services, and Wärtsilä's portfolio is the broadest in the market. These factors limit the impacts of fluctuations in any individual market or customer segment.