Revolutionary Shipyard

By ANDREW PURVIS

Poland's shipyards have a proud and venerable tradition of giving birth not only to huge cargo vessels but also to the Solidarity movement that swept the country toward democracy in the 1980s. Now the yards are being transformed by a new revolution--one rooted not in politics but in business. And their most recent product is quite an eye-catcher.

Set against the slate-gray Baltic skyline, the Finnfighter has neither the smooth horizontal lines of a conventional freighter nor the bulk of a passenger ferryboat. It combines elements of both, as if a cargo ship had slowly crunched its stern flat against an iceberg. It's the latest in a new line of ships to roll out of Dry Dock No. 1 in the industrial port city of Gdynia. It's also a rare economic success story to emerge from the tatters of communist rule.

Finnfighter is one of several Gdynia prototypes that go beyond mere tinkering with conventional cargo hulls to meet the special needs of international clients. Together with lower labor costs and aggressive restructuring, this kind of niche marketing has fueled a remarkable turnaround. Order books for the Gdynia Shipyard Group are among the fattest in the global shipbuilding industry. Between now and 2004, some 65 ships worth more than $2 billion will sail from these docks.

Gdynia workmen are cutting steel for a replacement fleet of seven custom-designed carriers for the timber giant Weyerhaeuser, based in Federal Way, Wash. The 78-year-old yard beat out competing bids from Japan and South Korea for the contract, said to be worth some $250 million. Frank Mendizabal, a Weyerhaeuser spokesman, said the company asked U.S. shipyards, which he declined to name, to bid on the contract but received no response. Gdynia's bid offered the "best value" in terms of cost and willingness to collaborate on the new design. "There are not a lot of shipyards," he added, "with expertise to build this type of ship."

Gdynia's success comes at a time of oversupply in the shipping industry worldwide and hard times generally in Eastern Europe's fledgling market economies. Wolfgang Hubner, head of the transport division at the Paris-based Organization for Economic Cooperation and Development (OECD), called the Gdynia yard's resurrection "astonishing. Everyone is pleasantly surprised--except its competitors."

A few years ago, the Gdynia yard was threatened with bankruptcy and unable to obtain financing from local banks. The change came with the arrival of CEO Janusz Szlanta, 48, a plainspoken former provincial governor and investment banker known for his financial acumen but new to shipbuilding.

At the time, Szlanta was in charge of restructuring failing companies for the privately owned Polish Bank of Development. On the advice of Szlanta, the bank took over management of Gdynia's shares in 1996. He then used his personal banking connections to obtain desperately needed credits that would help boost the shipyard's output. He put the workers on round-the-clock shifts, which boosted productivity. In 1997 the shipyard was turning a profit of $16 million on $300 million in sales. The next year, net profits nearly doubled, to $30 million. Szlanta is highly motivated to keep the yard on a roll--he and two other shipyard executives own one-third of Gdynia's stock, and the company has plans to list on the Warsaw exchange.

The company's success owes something to the relatively low wages paid skilled workers. An experienced production worker at Gdynia earns about $775 a month, compared with $3,690 in Japan and $3,300 in the U.S. The yard's business got a boost last year when European governments, under an OECD-orchestrated plan, agreed to lift their subsidies from competing shipyards. But Szlanta emphasizes that Gdynia also benefits from a pool of several dozen leading engineers, who were trained at Gdansk Technical University's elite shipbuilding school and are considered among the best in the world.

Szlanta's strategy of specialization has proved to be smart. While other shipbuilders tend to work on variations of a standard hull, Gdynia designs from scratch and works closely with clients to add special features that they want. The blueprint that won the Weyerhaeuser contract is a gantry-crane "open hatch" design that many shipyards simply weren't equipped to produce. The ships will carry lumber and paper to the Far East and return filled with cars, snowmobiles and industrial equipment. The built-in retractable cranes will allow the ships to load and unload quickly, even at ports with inferior or damaged equipment. Other design elements will make the ships sail faster than most, in part by allowing them to remain at high speed while flushing their bilges at sea, a health measure required by many ports.

Szlanta is currently eyeing a variety of acquisitions. Despite shipbuilding's dowdy reputation, "nobody will ever invent another way of transporting heavy commodities," Szlanta points out. "It is even more stable than the car industry. It existed before that industry and will remain after it vanishes."

In 1998, when Szlanta took over the celebrated Gdansk shipyard, birthplace of Solidarity, the firm was burdened with $160 million in debt and an entrenched culture of trade unionism. As a condition of the purchase, Szlanta guaranteed 2,200 jobs for at least five years. He has overdelivered on that promise. He's boosted the payroll to 4,000 and invested in the retraining of workers. "Some people believed history would pay their current bills," says Szlanta of union resistance to his plans. But the union leaders were right about one thing. The recent success of Poland's shipyards is proof that a proud tradition can pay dividends--if harnessed to good management and marketing.

--With reporting by Beau Briese/ New York and Tadeusz L. Kucharski/Gdynia

For more on Weyerhaeuser, shipbuilding and Gdynia, see our website at time.com/global

With reporting by Beau Briese/New York and Tadeusz L. Kucharski/Gdynia