Philippine shipbuilding at risk without local supply chain support, states report

Philippine shipbuilding at risk without local supply chain support, states report
Liz Lagniton September 16, 2025 https://maritimefairtrade.org/philippine-shipbuilding-at-risk-without-lo...

The Philippines remains one of the world’s largest shipbuilding nations, but its long-term growth is at risk due to the absence of domestic suppliers for critical marine equipment, according to a new report from the Organization for Economic Co-operation and Development (OECD).

In its “Peer Review of the Philippines’ Shipbuilding Industry” published on September 12, the OECD said the lack of homegrown production for engines, turbines, and energy systems is keeping the industry dependent on imports — driving up costs and exposing shipyards to global supply chain shocks.

“A lack of domestic ancillary industries, including domestic manufacturing capabilities for marine equipment, impacts costs and increases downtime for yards,” the OECD said. “Reliance on imported components further exposes the industry to supply chain vulnerabilities.”

The findings underscore both the promise and fragility of a sector that has been touted as a national growth engine. The Philippines ranked as the fourth-largest shipbuilding nation in 2022, behind only China, South Korea, and Japan.

However, the report noted that much of this capacity rests on foreign-owned shipyards, with local players still heavily concentrated in ship repair and maintenance rather than new builds.
Global power with local weaknesses

Shipbuilding is considered one of the most strategically important industries in Asia, tied not only to manufacturing but also to national security, logistics, and global trade.

South Korea and Japan, for instance, developed globally competitive industries through decades of government subsidies, strong supplier ecosystems, and cutting-edge research and development infrastructure. China, now the world’s largest shipbuilder, has followed a similar playbook, using state support to dominate production.

The Philippines’ rise followed a different path. Its ascent in the global rankings was propelled mainly by foreign-owned facilities. Japan’s Tsuneishi Heavy Industries operates in Cebu, while Singapore’s Seatrium and other international firms have established large-scale shipyards in Batangas and Subic.

These companies brought foreign capital, technological expertise, and access to international markets, allowing the Philippines to capture export demand for bulk carriers and container ships.

But unlike its Asian counterparts, the Philippines has not developed a broad domestic supply chain for engines, turbines, propulsion systems, or marine-grade steel.

This reliance on imports leaves shipbuilders exposed to exchange rate fluctuations, shipping delays, and rising logistics costs.

“Addressing cost inefficiencies through local marine equipment production and achieving economies of scale could help strengthen the global competitiveness of the Philippine shipbuilding industry,” the OECD said.
Historical roots of Philippine shipbuilding

The country’s maritime tradition dates back centuries.

During the Spanish colonial period, shipyards in Cavite were key to maintaining the Manila galleon trade that linked Asia and the Americas. In the American era, Subic Bay and Cebu became naval bases with supporting ship repair facilities.

After World War 2, the Philippines rebuilt its maritime sector, though it remained focused primarily on repair and maintenance. It was only in the 1990s and 2000s that the country began to emerge as a significant global player in shipbuilding due to foreign investment in large-scale yards.

Subic, Batangas, and Cebu developed as industrial hubs, hosting both commercial and naval repair facilities.

The bankruptcy of Hanjin Heavy Industries and Construction-Philippines in 2019 marked a turning point. Once the country’s largest shipyard, Hanjin employed more than 30,000 workers at its peak. Its collapse, the biggest corporate bankruptcy in Philippine history, highlighted the vulnerabilities of relying heavily on foreign operators.

The Philippines experienced its strongest production years between 2014 and 2015, when output peaked.

But OECD data showed that ship production, measured in compensated gross tonnage (CGT), fell sharply afterward, dropping by more than half from 873,141 CGT in 2018 to 406,486 CGT in 2019.

From 2000 to 2024, 96 percent of Philippine ship deliveries went to overseas markets, with 99 percent of these produced by foreign-owned yards. Bulk carriers made up 65 percent of exports, followed by container ships at 26 percent.

This dual structure has defined the sector: Export-oriented production dominated by foreign-owned shipyards, and domestic yards focusing largely on repair and retrofitting.

About 95 percent of locally owned shipyards concentrate on repair rather than new builds. Despite this, they account for 64 percent of the local repair market and 53 percent of foreign demand for ship repairs.

“Repair activities present an opportunity to strengthen local shipbuilding capabilities to meet both domestic and international needs,” the OECD said.
Infrastructure in urgent need of rehabilitation

One of the OECD’s most striking findings is the state of Philippine shipyard infrastructure.

Of 186 registered facilities, 66 percent require rehabilitation. Many rely on outdated slipways rather than modern drydocks, limiting both efficiency and competitiveness.

“The Philippine ship repair industry is strategically positioned to cater to growing demand in Southeast Asia, with East Asia and Europe as its largest foreign markets,” the OECD said.

The sector saw strong post-pandemic recovery, peaking at 60 repair activities in the third quarter of 2023.

However, the lack of modernized infrastructure could hinder further growth. Neighboring countries such as Vietnam, Indonesia, and Malaysia are already investing in their maritime industries, raising competition in the region.

Despite these challenges, the OECD highlighted that maritime sector remains a major source of employment. In 2021, it accounted for 1.8 million workers, with 82 percent classified as skilled or semi-skilled.

The Philippines is also one of the world’s largest suppliers of seafarers, with hundreds of thousands deployed abroad every year.

However, the OECD flagged persistent issues in workforce development. “While 82% of the workforce is classified as skilled or semi-skilled, challenges such as high dropout rates in maritime education, outdated facilities, and workforce emigration persist,” the OECD said.

The OECD also noted that the domestic shipyards often lag behind global standards in training and safety compliance, highlighting the need to better align training programs with industry demands.

To address these concerns, the Maritime Industry Authority (MARINA) has partnered with the Technical Education and Skills Development Authority and the University of the Philippines to upgrade skills of the maritime workforce.
Policy reforms on horizon

The Philippine government has responded with a range of policies designed to strengthen the shipbuilding and ship repair (SBSR) industry.

At the core is the Maritime Industry Development Plan 2019 – 2028, which sets targets for modernization, sustainability, and safety. The plan aims to expand shipbuilding capacity, enhance workforce training, and prepare the industry for international environmental regulations.

In congress, legislators have filed bills to provide stronger support:

House Bill No. 2597, or the Shipyard Industry Fiscal Incentives Bill, seeks to provide fiscal incentives, including VAT exemptions and duty-free importation of equipment.

House Bill No. 2598, or the SBSR Development Bill, proposes government aid and research and development assistance to help scale operations and cut costs.

The proposed SBSR Development Bill of 2025 would recognize SBSR as a key economic driver and create a framework for tax incentives, support for green technologies, and expanded workforce training.

“By addressing structural challenges and streamlining regulatory frameworks, these policies aim to reduce barriers for domestic and foreign investors, foster innovation, and enhance the industry’s competitiveness on a global scale,” the OECD said.

The industry is also covered by broader national frameworks. The Corporate Recovery and Tax Incentives for Enterprises Act and the Strategic Investment Priority Plan include provisions for SBSR projects, with potential higher-tier classifications for green and advanced technology initiatives.

The “green lanes” initiative, meanwhile, aims to simplify regulatory approvals for strategic investments.
Green transitions and digital futures

The global shipping industry is under pressure to decarbonize and digitalize, and the Philippines is beginning to feel those same demands.

“Environmental protection and decarbonization are an increasing priority, with 25 percent of vessels to be completed in 2026 being alternative fuel capable,” the OECD said.

So far, green technologies such as bow enhancements and stator fins are primarily implemented in foreign-owned yards, mainly for export markets.

“Ports are actively greening operations, but greater efforts are needed to integrate sustainability practices within non-foreign owned domestic shipyards,” the report added.

On the digital front, adoption remains uneven.

“Digitalization is increasingly prioritized across the maritime sector, but its adoption remains limited within the domestic shipbuilding and ship repair industry,” the OECD said.

MARINA’s modernization drive includes the MARINA BEST program, while the Philippine Ports Authority has introduced its Blueprint for Resilient and Efficient Ports 2024. Both initiatives emphasize digital platforms, automation, and data-driven decision-making.

Ship recycling is emerging as a potential growth area. The OECD noted that the Philippines had 13 registered recyclers in 2023 and is preparing to ratify the Hong Kong Convention on Ship Recycling by 2025.

The aging of the domestic maritime fleet, particularly ferries, is driving increased demand for ship recycling services. Industry analysts say the trend reflects growing concerns over safety and environmental risks associated with older vessels.

Recycling not only addresses these concerns but also offers opportunities for recovering valuable materials.

However, the OECD also emphasized the lack of advanced research and development infrastructure. Unlike Japan and South Korea, which operate towing tanks and large-scale testing facilities, the Philippines does not have comparable assets.

Research in the country has focused mainly on modernization, energy efficiency, and cost-effective technologies.

But without testing infrastructure, the industry remains limited in developing specialized vessels such as LNG carriers, offshore platforms, or advanced container ships.