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Украинские нефтепродукты
Shipbuilding of Ukraine (2007)  
Parameters: Other machine-building




Shipbuilding of Ukraine (2007)

Till 1991, shipbuilding industry of the Soviet Union was one of the world leaders. It provided a third in the world warship building, and the country was in the top ten developed states in terms of civil shipbuilding.

After the breakdown of the USSR, Ukraine inherited powerful shipbuilding facilities. Most of it was subject to administration by the Ministry of industrial policy of Ukraine. These were 11 shipbuilding plants, which used to contribute around 30% to shipbuilding output of the USSR, 7 marine engineering enterprises, 11 companies involved in marine device construction, as well as 27 separate R&D institutes and design bureaus. Also, Ukraine has a number of shipbuilding plants and docks administered by the Ministry of transportation and communication, the Committee of fishing business, and the Ministry of defense.

Most of enterprises and organizations in the industry fall under non-governmental UkrSudProm Association of Shipbuilders of Ukraine, which was established to represent and protect the interests of its members in state and other bodies.

The USSR’s collapse put Ukraine’s shipbuilding into a long-term decline. It lasted until 1999 and was mostly due to a minimum volume of state shipbuilding orders. In general, between 1992 till 2003, the 11 shipyards of the country produced 237 navigation units for a total value of USD 1.5 bn. At the same time, domestic orders were the smallest – 30 units (USD 75 mn).

The increase in shipbuilding volume in the last six years is related to the restructuring of enterprises, export re-orientation of their performance, as well as state support measures.

Tankers with deadweight up to 100 ths. tons, bulk carriers, refrigerator ships, fishing ships, and well mastered lately ships of industrial fleet are traditional export output for Ukraine.

According to the information of Ministry of industrial policy, shipbuilding plants of Ukraine increased sales of their output by 10% over the first three quarters of 2007 against the corresponding period of 2006. Sales amounted to UAH 1.5 bn. In the period under review the country’s shipbuilding plants engineered and handed to customers some 29 vessels of gross value USD 151.7 mn thus doubling the results of 2006.

Growth of production volumes was witnessed at the enterprises of shipbuilding industry over 2000-2006. Rates of growth changed from year to year and sometimes reached record-high figures (specifically, accretion of production amounted to 114% according to the results of 2004). Meanwhile, it used to go down to 20-30%.

In 2003-2004 the country’s shipbuilding plants engineered and handed to customers some 72 vessels of gross value USD 140.5 mn. Aggregate value of dock services outran UAH 232 mn, while supplies of gas turbine machinery amounted to UAH 1,128 mn.

If the year 2004 was a record-high time by growth of production, then certain downfall of growth rates was witnessed in 2005. It should not be misleading, because shipbuilding industry of Ukraine has never achieved such production volumes over the years of independence as in 2004.

Specificity of this output makes the basis of ship building dynamics instability: time of one ship building can exceed one year (and in certain cases, like in the period of total non-payments and shortage of financial resources, it can go far beyond one year). Besides, up to now loading of existing facilities in the industry does not surpass 50-60% (in accordance with the estimates of Ministry of industrial policy, it is possible to annually produce the output for USD 400-450 mn at existing production facilities). Therefore, volumes of orders in portfolio can become the main index of the industry potential in the short run.

Meanwhile, industry enterprises urgently need upgrading. The plants are experiencing a serious lack of their own current assets and are strongly dependent on loans, thus, the financial and economic situation in the industry remains unstable. Production facilities are not working near full capacity, and customers are not always timely in paying for services, hence causing losses.

It is almost impossible to drive investments for production upgrades in state-owned enterprises. Hence, the Ukrainian government made the strategic decision to privatize them and start looking for investors and owners who will be able to run effective production. This implies first of all a complete loading of facilities and technical refit.

The following objects have undergone privatization: Okean Plant of Nikolayev, Zaliv Plant (Kerch, the Crimea), SevMorZavod (Sevastopol, the Crimea), and Azovskiy Ship Repair Plant of Mariupol. Kherson Shipbuilding Plant underwent corporatization in 2003, and the corporatization at Izmail Ship Repair Plant was held in 2004. Although not all these steps can be called a success, the process has started.

The privatization of Okean Shipbuilding Plant (Nikolayev) by the Damen group of companies (the Netherlands) held several years ago was the most successful example. As a result, after standing idle for some five years, the plant not only came back to work, but turned into the leader of the shipbuilding industry in the country.

This particular plant is fulfilling the first-ever contracts for the construction of a series of ships upon the request of a domestic shipping company. In September 2005, OJSC Damen Shipyards Okean floated out the second universal cargo vessel – one of a series of ships being built upon the request of JSC UkrRichFlot (Ukrainian River Fleet). A new contract was signed in 2005, which increased the series by five more vessels.

The first quarter of 2008 should evidence privatization of two sites of shipbuilding industry – namely, OJSC More Shipbuilding Company of Feodosia and State-owned enterprise “Izmail Ship Repair Plant”. Experts believe that these assets will raise interest among businessmen, which already own shipbuilding enterprises or navigation companies.

Accounts payable of More company come to UAH 100 mn. The company is specializing in production of vessels and ships of light-metal alloys. It is a very high-technology, but also expensive product, so demand for it has been recently on a downturn. “More”, in the words of its directors, is getting ready to adjust its facilities for building of vessels out of ferrous metals, which are way lower in price, while demand for them is greater.

Association of Shipbuilders of Ukraine has optimistic opinion about privatization of plants and says that soon nearly every financial-and-industrial group would want to build vessels and acquire own fleet. While in case of selling shipbuilding products profitability comes to 1-1.5%, net income under conditions of integrated production may outrun the costs 2-2.5 times. Over 20 years of servicing tanker or dry cargo ship of own production, the group may receive more than USD 100 mn of net income.

The draft Program of marine and river transportation development in Ukraine through 2010 spells out that 35-40% of the industry’s facilities should be oriented toward the local market. The rest may be focused on foreign markets. At the same time, practice shows that orders for domestic market are still rare.

State support and the opening of free economic zones, foremost at enterprises based in Nikolayev were of crucial recent developments in Ukraine’s shipbuilding industry.

46 top companies in the industry received legal preferences. The country’s shipbuilding industry operates under the Law of Ukraine “On state support measures for the shipbuilding industry in Ukraine”. By implementation the law’s original form, the gross volume of assets left to be administered by the enterprises came close to UAH 270 mn from 2000-2004. This has had a positive effect on growing production by shipbuilding enterprises and their development, as well as higher efficiency of business and the competitiveness of the output.

Regrettably, early 2005 brought serious problems with the removal of the preferences that the industry used to have. Sequences of adopting the Law of Ukraine on state budget unexpectedly became a serious problem. It caused canceling of all preferences of the industry. There was a hard fight to return these preferences. Some were given back thanks to the decree of the Cabinet of Ministers of Ukraine No.555 of July 12, 2005 “On approval of the Order of adding shipbuilding enterprises to the list of companies subject to state support of shipbuilding industry of Ukraine” and decree of the Cabinet of Ministers of Ukraine No.111-p of April 20, 2005 “On determining of a period of commodity handling at customs territory of Ukraine needed to fulfill repair and recovery of gas turbine aggregates and their parts”.

Within the Nikolayev Special Economic Zone, enterprises like Damen Shipyards Okean, Chernomorskiy (Black Sea) Shipbuilding Plant, 61 Communards Shipbuilding Plant, as well as the Raduga (Rainbow) paint and insulation enterprise are implementing investment projects targeted to raise efficiency and quality in primarily export-oriented vessel building through production upgrades. Gross investment in these projects comes to USD 15 mn. The fulfillment of the projects will secure higher competitiveness in both construction and product capability, as well as an increase and improvement of production capacity

The industry’s plants are commissioning the construction of new vessels. Chernomorskiy (Black Sea) Shipbuilding Plant built five towboats; the Chernomorets Central Construction Bureau commissioned Sevastopol Marine Plant to build a fire boat for Druzhba Oil Mainlines; Damen Shipyards Okean is running the construction of full-set combi-freighters, ocean towboats for foreign clients and has also started the construction of river-sea vessels for UkrRichFlot Company.

Meanwhile, the 61 Communards Shipbuilding Plant is finishing the construction of towboats for Delta-Lotsman state enterprise. More FSK OJSC launched the production of Kafa high-speed powerboats and built modernized Grif-T type boats for Turkmenistan. The Leninskaya Kuznitsa Plant launched construction of Gurza armed boats for Uzbekistan designed by Scientific and Production Center of shipbuilding. Kiev Ship Building and Repair Plant has produced three car ferries for the Republic of Gambia.

A real shipbuilding boom has been seen at world dockyards in the last three years. To order the vessel in places where the overwhelming majority of world ships are built, – in South Korea, China, or Japan - there is a waiting list of no less than three years – just because these docks are full with orders for several years ahead.

Today’s shipbuilding boom gives a chance to European shipbuilders, which used to suffer and are still suffering severe competition from their Asian colleagues. It is particularly an opportunity to improve the situation in Ukrainian shipbuilding. However, the main problem, which shipbuilding companies face, is lack of human resources, as the cycle of qualified staff preparation stopped during economic crisis. Hence, even if the resolution on abolishing of preferences for free economic areas will be cancelled, the question of recovery in shipbuilding industry will remain unsolved, as it will not renew the cycle of labor resource reproduction.

In general, even with active state support, shipbuilding industry of Ukraine will only become a notable player of the global market in 10 years.


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