CROATIA
Environment-Friendly
Transport Solutions
(Maritime Industry)
“Short-sea” transportation refers to transporting passengers
or goods short distances in coastal waters. It includes coastal
trade, such as transferring freight from sea shipping to other
modes of transport and last-mile transport on inland waterways.
These “short-sea” strategic segments present opportunities
for Croatia due to its coastal geography. They also provide a
manageable testbed for innovations such as green shipping
and smart shipping.
Project co-financed by the European Union from the European Fund for Regional Development
Industry Snapshot
The global maritime industry is recovering from The Croatian maritime industry is struggling to
a lengthy period of stagnation, but overcapac- keep up. Croatia has traditionally been a center
ity will persist. The industry generated global for nautical knowledge and shipbuilding. It is
revenues of EUR 228 billion in 2014, a cumula- still one of the largest European shipbuilding
tive growth of 1.1 percent since the 2008 global countries. However, this apparent status belies
financial crisis. Global exports reached EUR 138 the financial struggles of Croatia’s shipyards. The
billion in 2014. However, demand growth has country lags European counterparts in the transi-
failed to absorb the numbers of vessels entering tion to specialized, high-value segments.
the market.
Shipbuilding is important in Croatia. The
Croatian maritime industry consists of 233 compa-
nies in activities related to manufacturing boats
and ships. The industry employed 6,700 people in
2016. The industry accounts for up to 1.8 percent
of gross domestic product (GDP) and as much as
15 percent of Croatian exports. The multiplicative
effect of the shipbuilding industry on the Croatian
economy is around 2.8. EUR 1 million generated
in shipyards results in EUR 2.8 million of total
production in the Croatian economy.
2 C ROAT IA : E N V I R O N M E N T- F R I E N D LY TR ANSP ORT SOLU TIONS ( M A RITIM E INDU STRY )
Emerging
Strategic
Segments
Global trends are driving change in the maritime industry.
The fortunes of the maritime industry are linked to population
growth, urbanization, global trade volumes, free trade,
globalization, climate disruption, and digitalization.
Cleaner propulsion systems are replacing diesel the national average by a factor of three. Higher
engines. No single type of propulsion system is economic growth in regions along the shore is
replacing diesel. Instead, there are many alter- driving coastward migration in Asia and Africa.
natives, including electric, hybrid, hydrogen fuel Most of the world’s megacities are within 100 km
cell, and liquefied natural gas (LNG). Their use of the sea.
varies by route type and conditions.
Population growth and urbanization along the
world’s coastlines drive demand for water trans-
In China, for example, coastal growth
port services. Coastal populations are growing
much faster than those of inland areas. In China, rates have exceeded the national
for example, coastal growth rates have exceeded average by a factor of three.
“Short-Sea”
Transportation close to shore, allowing easy refueling and recharging, more
favorable weather conditions, and use of land communications infrastructure
The emerging “short-sea” strategic segment “Short-sea” travel and services will be the
is increasingly attractive considering global testbed for advances in the maritime industry.
trends. The so-called “short sea” refers to travel Climate disruption and digitalization are remak-
close to shore, as opposed to across the deep ing the maritime business. The industry needs
sea. In the right circumstances, proximity to the to assess and apply emerging “green ship”
coast offers several advantages. They include and “smart ship” technologies. It will do so in
accessibility of refueling or recharging facilities, short-sea segments before adapting them for
favorable weather conditions, and the availability deep-sea uses.
of communications infrastructure. However, the
advantages of the short-sea strategic segment The European maritime industry has carved a
do not apply to larger seagoing ships. These niche in constructing vessels in the “short-sea”
deep ocean vessels remain an essential sector of strategic segment. European producers build
the maritime industry overall. ships with specific characteristics for short-
sea deployment. The ships use sophisticated,
high-tech manufacturing processes. Making them
requires linking large networks of specialized
suppliers and subcontractors.
C R OATI A : E N V I R O N M E NT-FRIENDLY TRA NSP ORT SOLU TIONS ( M A RITIM E INDU STRY ) 3
M A K I N G C R OAT I A C O M P E T I T I V E
Where Is the Value Chain Weak?
Croatia could strengthen its value chain to Critically, building specialized vessels for the
position its maritime industry for the emerging short seas would require Croatia to improve its
“short-sea” strategic segment. ability to innovate. Emerging “short-sea” strategic
segments are knowledge-intensive and reward
❚❚ Need for skills development. Croatia needs inbuilt innovation capacity for three reasons:
to strengthen capacities and boost R&D in
electric, hybrid, and alternative fuel systems ❚❚ One-off or small batch production. Buyers in
and to lay the groundwork for smart, “short-sea” strategic segments often order
connected ships. small quantities of high-technology vessels.
Buyers want ships that require customized
❚❚ Lack of ship systems integrators. As ships
production processes. Fulfilling these orders
become smarter and more complex,
requires innovating along the production line.
shipbuilders must design entire ship
systems around the electrical platform. The ❚❚ Concept-based design. While many ocean-
electrical systems integrator is emerging as going vessels are highly standardized,
a critical point of contact and holder of the specialized ships that operate on short seas
customer relationship. are much less so. Orders may be based on a
concept rather than detailed specifications.
❚❚ Lack of repair and retrofit expertise. Repairing
Meeting such requests requires the ability to
and refitting vessels to run on electric, hybrid,
innovate after signing the contract.
or alternative fuel systems could present
opportunities. Victor Lenac yard specializes in ❚❚ Sophisticated production chains.
repair and retrofit. Manufacturing in the “short-sea” strate-
gic segment differs from mass production
❚❚ Lack of supporting infrastructure for alter-
processes. Production in the “short-sea”
native fuels. Ships running on electric and
segment involves an extensive network
hybrid propulsion systems, or alternative fuels
of highly specialized subcontractors.
such as LNG, need access to the right infra-
Coordinating this network requires innovating
structure. Charging stations and alternative
across the value chain.
fueling stations are scarce at Croatian docks
and ports.
The maritime industry is now in a
period of overcapacity and oversupply
that started with the global financial
crisis. However, long-term demand
conditions are favorable for Croatian
producers of specialized vessels in
short-sea segments.
4 C ROAT IA : E N V I R O N M E N T- F R I E N D LY TR ANSP ORT SOLU TIONS ( M A RITIM E INDU STRY )
Areas for Reform
Certain aspects of the industry ecosystem limit Access to finance in Croatia is especially
Croatia’s competitiveness in emerging “short- unsuitable for the maritime industry. Financing
sea” strategic segments. for buying a ship differs from other transactions
in two main ways. One is that the capital cost of
new ship construction is high. The other is that
Demand Conditions manufacturers need financing before building the
vessel. (Shipbuilders need to draw funds before
Demand in the maritime industry is cyclical. The the hull is available as collateral.) Government-
maritime industry is now in a period of overca- backed financing schemes play a vital role in the
pacity and oversupply that started with the global industry. Croatia has not provided such a financ-
financial crisis. However, long-term demand ing scheme, unlike its competitors.
conditions are favorable for Croatian producers
of specialized vessels in short-sea segments.
Strategy, Structure, and Rivalry
Factor Conditions Exports have been declining. The Croatian
maritime industry is export-oriented. Exports
Croatian maritime labor productivity is low. generate 63 percent of the industry’s turnover.
Croatian employee productivity in the maritime Shipbuilding is cyclical. As a result, year-on-year
industry is about a third that in the Republic of trends do not give a full picture of the industry’s
Korea. It is half that in both Japan and the EU. It is health. Nevertheless, it is notable that Croatia’s
significantly lower than in China. EUR 136 million of maritime exports in 2016 was
down over 40 percent from 2015.
Croatia may lack adequate human resources.
The Croatian maritime industry needs to retool
and update its skillset from a focus on conven- Related and Supporting Industries
tional shipbuilding. It needs to align with the
greening and digitalizing trends of the emerging The Croatian public and private sectors engage
“short-sea” strategic segment. However, skilled in little systematic research collaboration.
engineers are scarce due to emigration, urban- Improving cooperation and cooperation between
ization, and potential labor market distortions. universities, research institutions, and the private
sector is essential to performing focused and
relevant R&D.
C R OATI A : E N V I R O N M E NT-FRIENDLY TRA NSP ORT SOLU TIONS ( M A RITIM E INDU STRY ) 5
Recommendations
Croatia could improve its position in emerging “short-sea” strategic segments by:
1. 5.
Incorporating commercial risk instruments Supplying training on the market trends in short-
into innovation procurements. The Ministry of sea movements of cargo and large numbers
Economy Entrepreneurship and Crafts (MoEEC) of people. MoEEC could contract this training
could implement this recommendation as a to relevant government agencies as a technical
partial risk guarantee to cover a portion of private assistance program.
investment (whether from debt or direct capital
Estimated timeframe: includes short- (1 year) and
investment).
long-term (10 year) programs.
Estimated timeframe: 7 years.
6.
2. Providing business mentoring on product
Deploying precompetitive procurements (PCPs). innovation, opportunity recognition, risk
PCPs have driven the innovation and commercial- perception, entrepreneurship, and professional
ization of alternative propulsion systems on public networking. MoEEC (through EBRD) or the
ferry routes. Implementation of this recommen- Croatian Chamber of Economy could implement
dation would be supported by a comprehensive the mentoring program (through a technical assis-
financial support scheme for public procurement tance program) as a matching grants scheme.
of innovative goods and services (as a techni-
Estimated timeframe: 2 years.
cal assistance program through the Ministry of
Maritime Affairs, Transport and Infrastructure).
Estimated timeframe: 7–10 years. 7.
Adopting a regulatory and policy framework
to drive change in the maritime industry.
3. Domestic policy will need to complement—and
Helping Croatian firms face the onset of even go farther than—international conven-
alternative propulsion systems. The technical tions and standards. The global benchmarks
center for the environmental transport sector include the Paris Conference of the Parties
could play this role. (COP) 21 Agreement on climate change and the
International Maritime Organization (IMO). MoEEC
and other relevant agencies could implement the
4. reforms through public institutions and govern-
Providing technology scouting for the ment agencies.
“short-sea” strategic segment to find the best
Estimated timeframe: 3 years.
technology providers globally. MoEEC could
implement this recommendation (through a
technical assistance program) as a matching
grants scheme.
8.
Conducting market intelligence studies on
Estimated timeframe: 3 years. major nautical hubs (such as Antibes, Parma,
and Barcelona). The studies would gather intel-
ligence on user demand (and willingness to pay
for customized products and services related to
NOTE safety, tracking, and search & rescue). MoEEC
This report is a product of the staff of the World Bank Group. The findings,
and other relevant agencies could commission
interpretations, and conclusions expressed in the report do not neces-
sarily reflect the views of The World Bank Group, its Board of Executive
these studies through private sector firms.
Directors, or the governments they represent. The World Bank Group Estimated timeframe: 5 years.
does not guarantee the accuracy of the data included in this work, which
is drawn from multiple external sources. Nothing herein shall constitute,
or be considered to be, a limitation upon or waiver of the privileges and
immunities of The World Bank Group, all of which are specifically reserved.