Shipbuilding Industry

Korean shipyards are among the best in the world.
Korean shipyards are among the best in the world.

 

Korea broke the US$1 trillion mark in terms of trade volume for the first time in its history on December 5, 2011, when Samsung Heavy Industries reported to the Korea Customs Service that it exported two units of drill ships at a combined price of US$1.2 billion. This showed how significant the shipbuilding industry is for the export-oriented economy of Korea as a whole. 

The country’s shipbuilding sector entered the international arena as a strong competitor back in the early 1980s. At that time, Daewoo Shipbuilding and Samsung Heavy Industries completed large-scale shipyards backed by the government’s industrial promotion policy. Starting from the latter half of 1986, the drop in exchange rate began to have a positive effect on the industry, along with low oil prices and interest rates. The following year, the international shipbuilding market picked up and the majority of new contracts were won by Korean shipbuilders, raising their global market share to 30.2%. 

Ever since, advanced economies like the United States and the European Union have tried to keep Korean shipbuilders in check. Their Japanese counterparts began to raise their guard against them but were unsuccessful due mainly to labor-management conflicts. Still, Korea’s shipbuilding industry fell into stagnation in 1987 owing to delivery delays caused by labor disputes, an increase in labor and manufacturing costs, and the appreciation of the local currency. The recession resulted in a government-led industrial restructuring plan in 1989. 

Shipbuilding exports are declining across the board.During the 1990s and 2000s, local shipbuilders focused on the development of high value added vessels such as LNG carriers and drill ships, rather than freighters and oil tankers,in order to tide over the crisis and become the number one in the world. For example, Korea has maintained its leading spot in the drill ship segment for many years. 

Exports from Korean shipbuilders reached US$9.7 billion in 2001, surpassing those from Japan for the first time by a margin of US$1.3 billion. Since then, they have dominated the global market. However, they were overtaken by Chinese rivals last year,with Chinese shipbuilders taking advantage of much cheaper labor costs and the government’s support. 

According to the Ministry of Trade, Industry and Energy, exports from the Korean shipbuilding industry totaled US$37.8 billion in 2012, while those from China amounted to US$39.2 billion. Korea’s market share was 35% the same year, just 1.7 percentage points higher than China’s. 

China’s shipbuilding sector rose to number one in spite of its technological inferiority and global economic downturn thanks to government support for high value added ship and offshore structure exports. In contrast, financial companies in Korea are refraining from providing loans, thus exacerbating the financing difficulties of Korean shipbuilders. The trend of payment in the global shipbuilding sector is also shifting from 20% installment to heavy tail;in which 60% of the payment is settled at once after 10% of it is paid four times prior, meaning financial assistance is becoming more and more indispensable. 

Furthermore, the Korean shipbuilding industry’s exports decreased by 30.1% between 2011 and 2012 in the wake of the collapse of Lehman Brothers and financial turmoil in Europe; which accounts for 85% of Korean shipbuilders’ export destinations. Under the circumstances, the industry fell five notches to sixth in regards to export items between 2009 and 2012, and recorded a negative growth of 27.54% last year for the first time since the Asian financial crisis in 1999. 

At present, Korea’s shipbuilding industry is sandwiched by those of Japan and China, which are showing excellent performance in the high value added and low-price vessel segments, respectively. The Ministry of Land, Infrastructure, Transport and Tourism of Japan recently announced new strategies to help local shipbuilders enter the maritime industry by offering financial support and training engineers and technicians.

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