Russian Shipbuilders are Running Out of Parts

Biggest Russian shipyards struggle to find enough propellers and engine parts

Russian shipbuilding behemoth United Shipbuilding Corp. is running out of key engine parts, delaying or halting the production of tankers and ocean vessels the country needs to move its oil and cargo.

Soon after Russia invaded Ukraine in February 2022, the U.S. and Europe slapped Russia with sanctions and export controls that have disrupted the flow of engine parts, propellers and fuel pumps.

State-owned United Shipbuilding, or USC, has been sanctioned since 2014, but its challenges of getting equipment and foreign specialists to install parts “took on a systemic character” after February 2022, a USC official said.

USC and Zvezda Shipbuilding Complex, another state-owned enterprise, are Russia’s two biggest yards in terms of orders. They produce an array of ships from nuclear-powered submarines and navy frigates to ice-breaking tankers and passenger ships.

Their clients are mostly from inside Russia, and the production problems will mostly be felt within the country. Any problems will have a limited impact on global shipbuilding, which is dominated by Asian yards that have a global order book.

A steady customer for both Russian yards is state-owned tanker operator Sovcomflot, which is also sanctioned and was forced to sell over a third of its fleet and move its operations in Dubai.

The European Union and the U.S. have imposed a ban on Russian ships at their ports along with sanctions on tankers moving Russian oil. These actions have led Russian oil exporters to rely on an aging fleet of tankers that now move the majority of the country’s seaborne oil exports.

INFOline, an adviser for investments in Russia, said local yards last year delivered 20% fewer ships than in 2021. Tonnage increased slightly because of the delivery by Zvezda of two large tankers to Sovcomflot and Rosnefteflot, another state-owned tanker owner.

USC is in the process of building 59 cargo ships. It delivered 17 ships in 2020 and 16 in 2021, but only four were produced last year because rudder propellers made in Germany are no longer supplied, according to people familiar with the order. USC declined to comment on its orders or deliveries.

Russian shipping executives say the yards are trying to make some of the missing parts themselves or replace them with imports from China, but creating new supply chains in shipbuilding takes time and adds costs. The yards are lobbying the Kremlin for support and subsidies like removing tax charges and scrapping penalties for missed delivery dates.

Zvezda is contracted to deliver more than 50 vessels this year. Components for these ships were secured before sanctions were imposed, but putting them together is work shared with Korean partners and this has stopped, according to people involved in the matter.

A manager at Zvezda’s plant in Bolshoi Kamen said the lack of imported engines was disrupting production at his site. He said it would take several years to produce some of those parts inside Russia. Zvezda didn’t respond to requests for comment.

Civilian yards received $6 million this year in state support, but executives say prospects for import substitutions are dim. Some executives say the Russian shipbuilding sector is facing its biggest challenge since the collapse of the Soviet Union and expect thousands of jobs at yards and at supporting manufacturers to be gone over the next year.

Deputy Prime Minister Denis Manturov said early this year that USC and the Ministry of Industry and Trade will cooperate to produce large-ship engines locally. The ministry said it would pump more than $1 billion over the next two years for the development of engine building.