Korean Shipping Companies Supplied with More and More Ships from China

It has been found that South Korean shipping companies placed orders for a total of 20 new ships and South Korean shipbuilders obtained only 35% of them between January 1 and May 15 this year while the rest went to Chinese shipbuilders.

On the contrary, Chinese shipping companies placed 16 orders during the period and all of the contracts were signed with Chinese shipbuilders. Japanese shipbuilders clinched two-thirds of the six contracts offered by Japanese shipping companies during the same period.

A shipbuilding contract between a shipping company and a shipbuilder in the same country is a typical way of beating a crisis in the shipping and shipbuilding industries. These days, however, Chinese shipbuilders are dominating market segments with low entry barriers by supplying their products at lower prices, which are attracting an increasing number of South Korean shipping companies.

This has to do with a difference in terms of government assistance. The Chinese government, for example, provides financial assistance covering approximately 90% of shipbuilding costs whereas refund guarantee (RG) by the government, which is indispensable for building a new ship, is rarely available in South Korea, where financial institutions are reluctant to provide it in most cases out of concerns over industrial risks. Besides, South Korean shipbuilders under creditors’ control cannot sign a new contract from the beginning unless it guarantees at least a certain level of profit.

Under the circumstances, it is non-major South Korean shipbuilders that are suffering more. At present, major South Korean shipbuilders such as Daewoo Shipbuilding & Marine Engineering, Samsung Heavy Industries and Hyundai Heavy Industries have business portfolios made up of ships that require a high level of technology and, as such, they are relatively free from Chinese shipbuilders’ offense based on price competitiveness. “The South Korean government’s financial assistance to the industry falls much behind those of the Chinese and Japanese governments,” said one of the non-major South Korean companies.