On The Right Course

Poland's shipyards have a long and venerable history, but their latest product is a strange-looking creature. Viewed against the slate-gray Baltic skyline, the new ship, the Finnfighter, has neither the smooth horizontal lines of a conventional freighter nor the bulk of a passenger ferry boat. Instead it combines elements of both, as if a cargo ship had slowly crunched its stern flat against an iceberg. The latest in a new line of ships to roll off Dry Dock Number One in the industrial port city of Gdynia, the Finnfighter is not just a new product. It is part of a small revolution taking place on Poland's Baltic coast, an economic version of the political upheavals that emanated from these same shipyards in the 1980s, and one of the rare business success stories to emerge from the tatters of communist rule.

Finnfighter is one of several prototypes the Gdynia shipyard has created over the past two years that go beyond simply tinkering with conventional cargo hulls in order to win contracts. The customer in this case is a Finnish shipping company that wanted to load heavy vehicles, paper and steel rolls easily onto the ship. Gdynia's solution: putting huge hatches on the ship's side and stern for efficient access. This kind of niche marketing, together with lower labor costs and aggressive restructuring, has fueled a remarkable turnaround. Just a few years ago the company appeared to be sinking; today order books for the Gdynia Shipyard Group, as it is now called, are among the largest in the industry. From now to 2004, 65 ships worth more than $2 billion will sail from these docks for clients in Germany, Finland, Sweden and the U.S.

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 Hübner, head of the transport division at the Organization for Economic Cooperation and Development (OECD) in Paris, calls the resurrection "astonishing."

A few years ago, none of this seemed possible. Gdynia was on the ropes, threatened with bankruptcy and unable to obtain financing from local banks. The change came with a new chief executive, Janusz Szlanta, a plainspoken former provincial governor and investment banker known for his financial acumen, not for his technical expertise in shipbuilding.

At the time, Szlanta was in charge of restructuring failing companies for the Polish Bank of Development. On his advice, the bank took over management of Gdynia's shares in 1996. Szlanta then used his banking connections to obtain desperately needed credit to boost shipyard output. He brought in 24-hour production, and within a year Gdynia was turning a profit of $16 million on $300 million in sales. The next year, profits doubled to $30 million. "Here was a guy from the south of Poland, not a shipbuilder," says Jerzy Bielinski, head of the business and economics department at Gdansk University. "He proved that it is possible to create an efficient shipyard-management system without a background in shipbuilding." Szlanta and two other executives own one-third of Gdynia's stock and plan to take the company public on the Warsaw exchange by year's end.

Szlanta insists the company's success is due not only to low labor costs but also to its organization. It has a pool of several dozen engineers, trained at Gdansk's élite shipbuilding faculty, who design from scratch, while other shipbuilders tend to produce variations of a standard hull. Since the shipbuilder draws on more than a thousand contractors from around the world for components, even small cost improvements can have a big impact on the bottom line. Szlanta also acknowledges that his business got a big boost last year when European governments under an OECD-orchestrated agreement vowed to lift their subsidies on competing shipyards. Szlanta is now negotiating to buy two luxury-liner shipyards in Finland from the Anglo-Norwegian group Kvaerner ASA — ironically, a company that had expressed interest in buying Gdynia and its sister yard Gdansk when both were facing hard times five years ago.

Szlanta, once an outsider, has become the foremost booster of an industry that has long been the mainstay of Poland's economy. Ships may not be an exciting product, but "nobody will ever invent another way of transporting heavy commodities," he says. "It is even more stable than the car industry."

In 1998 Szlanta took over the nearby Gdansk shipyard, where the Solidarity movement was born. The firm was burdened with $160 million in debt and an entrenched culture of trade unionism that resisted reform. "Some people believed history would pay their current bills," recalls Szlanta. As a condition of the purchase, Szlanta guaranteed 2,200 jobs for at least five years. Since then he has done better, boosting the payroll to 4,000 and at the same time investing in the retraining of existing workers. History may not pay the bills, but the union leaders were partly right. Venerable businesses can survive and their workers can prosper — but only with managers who know the difference between ships and money.