The Finnish Maritime Industry

Shipbuilding is one of Finland's oldest industries. Today, Finnish companies are integral cogs in the machine of global shipping.

I felt profoundly inadequate and incompetent after reading Brian Potter’s post over at Construction Physics about American icebreaker problems which, in passing, delivered very good content about Finnish icebreaker expertise. I did mention this obscure part of the shipbuilding industry a few times on my old blog and on Twitter but I never dedicated much time to it. I feel like I should be writing content like this but…

Anyhow, I decided to take this as an opportunity to write about a sector in which Finns have a lot of expertise: the maritime industry. This is nice for a change because I spent so much time writing about what Finland has lost entirely, phone manufacturing, and what it is still in the process of losing, paper (my blog has become quite gloomy over the last years). Phone and paper exports were the national cash cows and significant sources of jobs and their demise is one of the main reasons why Finland has stagnated for 15 years, why it runs large budget deficits and why the employment rate has been trailing its favourite peers. But there are things, obviously, that are still made in Finland and exported to the world. These goods and services are the outputs of complex, sophisticated industrial sectors. Icebreakers are just the proverbial tip of the iceberg. Underneath the surface, unnoticed by everyone but nerds and industry insiders, the body is much larger.

Finland still has a very complex economy and the problem is that it is not enough anymore to pull the entire country. If we look at individual industries, only at the industrial belt on the coast or the Southern part of Finland, things are not looking so bad. It is the aggregate that looks bad. That is not making things better but it is an important qualification to keep in mind. As one of my favourite Twitter mutuals said, in many countries that struggle economically including Finland, Italy and Japan, there is a dual economy of globalised, highly competitive businesses with high wages and a much weaker part that is not able to keep up. One aspect of this, which I stress every now and then, are profound regional disparities that are obscured by national statistics. But enough of this, let’s start with the maritime industry.

The maritime industry

Shipbuilding in Finland goes back at least to the 1300s but as a real or at least proto-industry it emerged in the 17th century on the Western coast first making ships for Stockholm merchants and later in the century warships for the crown. The industry, of course, didn’t come out of nowhere. Dutch shipbuilders and Swedish demand and capital were important factors. Ample forests provided wood as a construction material and tar to seal the hulls while the emerging iron industry produced nails and anchors. The Baltic Sea, poor inland routes and regulation of foreign trade (staple towns) made ships the best and often only mode of transportation. Despite what many people think, any economy is intimately connected to geography, climate, culture and politics and cannot be altered at will.

Over the centuries the Finnish shipbuilding industry expanded and diversified with many ups and downs to become what we call the maritime industry. A major inflection point was the collapse of Finnish shipbuilding by the end of the 19th century when demand for wooden sailing ships had cratered. Demand from the imperial Russian navy, and presumably Russian capital, helped the industry to recover and transition to iron steamships.

Shipbuilding was a major source of reparations Finland had to pay to the Soviet Union after World War II and this sudden demand had a positive impact on Finnish shipbuilding capacity and expertise. Over 100 existing ships were handed over, including Finland’s two icebreakers Voima (meaning power, force) and Jääkarhu (polar bear), and had to be replaced. A total of 575 ships were built in Finnish shipyards to comply with the reparation treaty. The government even founded new shipyards to fulfil its obligations because except Wärtsilä, which back then was a vertically integrated conglomerate making everything from metals to steam engines to finished ships, there were no other significant shipyards with enough production capacity. By 1952, the reparations had been paid. In less than a decade the Finnish shipbuilding industry had made great strides in both production capacity and quality and turned its attention towards exports.

Today, Finland is not only building a variety of ships like the largest cruise ships in the world, ferries of many different sizes and icebreakers but also ship engines and propulsion systems, components, parts and internal systems, machine tools, harbour cranes and vehicles and it is producing and exporting software and many design and other engineering services. The Azipod was invented in Finland in the late 1980s and the first one used on a commercial ship is now part of the collection of the maritime museum Forum Marinum in Turku. ABB still manufactures azipods in Finland today. The concept of the Double Acting Ship (DAS) - a conventional ship with a light icebreaker part at the stern - is also a Finnish invention as is the air bubble system for improved icebreaker performance.

Finland is home to the headquarters of some of the largest manufacturers and maintenance providers of harbour cranes and vehicles, one of which has been approached by the US government to manufacture cranes in the US to find alternatives to dominant Chinese manufacturers. Software and automation are integral parts of modern machines and cranes are no exception which is a key reason why the US government is worried about Chinese cranes. Finnish companies also sell software for ship design and construction, simulations and AR/VR, ship controls, fuel management and many other niches.

As a side note, freight shipping was a major source of income, ranking for a long time third in importance after agriculture and industry, and allowed capital accumulation which helped finance industrial expansion. As late as the first half of the 20th century Finnish shipping companies earned money transporting goods with sailing ships across the Atlantic and on the Mediterranean Sea. The historian (and nerd) Yrjö Kaukiainen wrote multiple books about the shipping industry, for example Sailing into the Twilight: Finnish Shipping in an Age of Transportation Revolution 1860-1914 (1991). Today, shipping has declined in importance as a source of income but as remains an invaluable enabling sector of the economy. Various ships, including smaller cruise ships with restaurants, bars and spas, transport people and goods between Finland and other Baltic Rim countries. This is the perhaps most important sector for the autonomous Åland Islands. Shipping remains an important mode of transportation in the Lakeland region both for industry and tourism.

How relevant is the maritime industry in Finland? Here are some numbers from both the industrial lobby group Meriteollisuus and the government investment vehicle Tesi (my translation):

• ~ 1,100 companies

• ~ 30,000 jobs

• Turnover of 9 billion euros

• 90% is exported

The three largest shipyards are in Turku, Helsinki and Rauma and they have different know-how and specialisations. Turku builds mostly very large cruise ships but also smaller vessels. In the past LNG tankers were also built there. Helsinki is very strong in icebreakers and other Arctic vessels and Rauma builds research vessels, icebreakers and ferries. Their supply chains are long and complex with the majority located in Finland forming a motor of economic activity whose importance is far more important than the above numbers suggest. Should the industry decline, the impact would be felt all over Finland.

Icebreakers and the future

For centuries Finland has been at the mercy of the sea and of the climate and this remains true even today. Technology is a means of overcoming the limits the physical world imposes on us. This is true of tractors and central heating as much as it is of icebreakers. The obscure ships are the reason Finland can exist as a modern economy. Almost all imports and exports go via the sea and Finland is the only country in the world where all ports can be closed off by sea ice in winter. This is why Finland owns the world’s second largest icebreaker fleet in the world: a total of nine, owned and operated by the fully state-owned enterprise Arctia. Seven of them were built between 1954 and 1994 and two, Ahto and Polaris, in 2014 and 2016. Polaris is the world’s first LNG-powered icebreaker.

The first time I read about this peculiar type of ship and how much Finland dominates its construction and design was in the Swiss newspaper NZZ in 2018. The paper called Finland the “icebreaker super power”. Finnish shipyards have built 60 per cent of the world’s active icebreakers and Finnish companies have had their hands in most of the rest. Finland prides itself to be the only country in the world that covers the entire icebreaker value chain from development to construction to servicing.

Now Finns hope to win big orders from the US government to help it overcome their severe icebreaker shortage (the US owns only two very old ships) but we live in the age of bipartisan “America First!”. Many American policymakers want the new icebreakers to be built in the US despite the lack of extensive shipbuilding and icebreaker know-how and much higher expected costs and many years longer construction times. Notable is that the Canadian company Davie bought the Helsinki shipyard from a Russian owner in 2023 and that Finland’s recent NATO accession could help. Finnish companies and export promotion agencies are certainly lobbying hard for it and they at least got both the Americans and Canadians to sign a trilateral declaration to work together on icebreakers. Perhaps Finland will win at least some of these contracts. A cynic might say that for as long as Russia was an open market, it was worth having Russian owners and now that it is closed it is worth selling the invaluable shipyard to North America.

There is also an idea of a joint Finnish-Swedish icebreaker acquisition but it seems to be stuck in limbo. Part of the idea is to create a new design for the icebreaker that runs on emission-free fuel, has low operational and maintenance cost and is big and powerful enough to make way for the bigger ships of the future. In 2020 the then-CEO of the Helsinki shipyard said that it is the company’s most challenging design yet. It has turned out since then that the interests of the two countries are not fully aligned. From the Finnish perspective the size - at least 32m in width - is unnecessary and smaller ships would do. The joint acquisition isn’t completely dead yet but in the end the two countries might order their own ships. The Finnish side is of course interested in the idea because it would guarantee that Sweden would order two ships from Finland meaning years of work and hundreds of millions of euros in sales and exports. If the two countries decide to part ways there is a chance, however small, that the Swedes will order them elsewhere.

The next few years will be important for the future of the Finnish icebreaker industry. Demand by the Finnish government - perpetually cash-strapped and trying to minimise government spending - will not be enough to maintain it. After losing access to Russia, the owner of the by far largest fleet of icebreakers, Finnish companies need new customers to stabilise and maintain the sector. Winning orders from America, Sweden and potentially other countries is necessary to do that.

If we zoom out a bit and look not only at icebreakers but other Arctic ships and anything technology related that operations in icy environments require, it is reasonable to be optimistic about Finnish prospects. As economic activity in the Arctic region is increasing, Finnish companies and the government will double down on this particular niche. However small it might be, for a small country like Finland this is a big source of income. And if the last years have taught us anything then it is that building things is not a trivial thing that anyone can do. Ships are complex arrangements of technology and building them at scale, affordably, on time and without defects is a phenomenal achievement.

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Some sources:

Clare, Horatio: Icebreaker (2017)
Kaukiainen, Yrjö: A History of Finnish Shipping (1993)
Kaukiainen, Yrjö: Sailing into the Twilight: Finnish Shipping in an Age of Transportation Revolution 1860-1914 (1991)

Brian Potter: Why the U.S. Can’t Build Icebreaking Ships, 26/9/2024
TEM: Icebreaker initiative means significant opportunities for Finnish industrial policy, 11/7/2024
Peter Rybski: Finland’s Icebreakers, 4/4/2024
NZZ: Finnland - Die Eisbrecher Supermacht, 4/4/2018
Business Finland: Finnish Solutions for the entire Icebreaker Value Chain (2018/pdf)