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Future Looking Dim for Korean Shipbuilding Sector
Hard Times
Future Looking Dim for Korean Shipbuilding Sector
  • By Jung Min-hee
  • July 17, 2015, 07:00
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Daewoo Shipbuilding & Marine Engineering President Jung Sung-rip said late last month that the situation in the domestic shipbuilding industry are unlikely to get better soon. “The rapid growth of the Chinese economy led to an increase in international cargo volume and a heyday of 20 years in the industry but China is losing steam these days,” he remarked, adding, “The shipbuilding industry, which is a labor-intensive one, tends to lose its competitiveness as national income increases, which means that the ball will be in the court of China someday.”

Nowadays, Korean shipbuilders are going through hard times. This is quite contrary to several years ago, when they fared pretty well in spite of the global economic recession. Hyundai Heavy Industries’ annual operating profits exceeded 4 trillion won (US$3.5 billion) in 2010 and 2011, but the company recorded more than 3.2 trillion won (US$2.8 billion) in operating losses last year to face layoffs and reorganization. This year, Daewoo Shipbuilding & Marine Engineering’s losses are forecast to have reached at least 2 trillion won (US$1.7 billion) in the second quarter alone, and a number of its subsidiaries are predicted to be put on the market.
 
In the 2000s, Korean shipbuilders were the major beneficiaries of the increasing cargo volume. According to the Korea Offshore & Shipbuilding Association, their total new building amount jumped from 6.05 million CGT to 11.11 million CGT between 2000 and 2006, and then rose to 12 million CGT and 13.56 million CGT in 2008 and 2011, respectively. Last year, however, it dropped to 10.3 million CGT.

The companies have concentrated on offshore plants since 2010 in order to tackle the decrease in the number of merchant ship orders caused by the global economic crisis of 2008. However, their lack of experience and excessive competition resulted in earnings shocks in 2014 and 2015, and low international oil prices are compounding the matter as of late.

Besides, Chinese shipbuilders are narrowing the technology gap at a rapid pace, while Japanese shipbuilders are benefiting from the weak yen. Although the top three Korean shipbuilders are successfully keeping them at bay based on their technological competitive edge, smaller Korean companies that mainly supply bulk carriers and oil tankers are on the brink of bankruptcy. STX Offshore & Shipbuilding, Sungdong Shipbuilding & Marine Engineering, SPP Shipbuilding, and many more have failed to repay their debts and are now under the control of banks.

Experts point out that the solution lies in R&D for eco-friendly and high-efficiency vessels. “Smaller companies may be well advised to share their R&D resources and capabilities so as to improve their cost competitiveness while cooperating with the industry leaders in order to supply high-quality components in response to the transfer of know-how,” one of them explained.