Deepening Recession
With domestic shipbuilders suspending the operation of their docks due to ongoing sluggish demand, six out of 10 dockyards worldwide have shut down in the past nine years.
According to a report from U.K.-based shipping and shipbuilding market analysis firm Clarkson Research, there were a total of 934 “active” shipyards globally in 2009. At that time, many firms scrambled to build shipyards to meet the demand in the peak of the shipbuilding cycle from 2007 to 2008.
This number has now dropped by 62% to stand at 358 yards as of start July 2017, the lowest number of active yards for many years. Clarkson also warned that the remaining yards would have to struggle to survive. The report said, “30 percent of the remaining yards will be out of work by the end of this year. The number of shipyards will continuously decrease for a while.”
The number of newbuild vessel orders reached 3,048 in the global shipbuilding market in 2013 alone. However, the figure dropped 80 percent to 573 last year. There are 321 orders placed during the first half of this year. It is only in the stage of recovery after hitting the bottom. The number is further below than that in its heyday.
The nation’s big three shipbuilders also have the lowest number of orders placed. Hyundai Heavy Industries Co. saw its backlog orders dropped from 58.2 trillion won (US$51.96 billion) in 2013 to 26.9 trillion won (US$24.02 billion) as of June this year. Daewoo Shipbuilding & Marine Engineering Co. also had backlog orders worth 58.6 trillion won (US$52.32 billion) three years ago but the figure declined to 31 trillion won (US$27.68 billion) now. Samsung Heavy Industries Co. also has backlog orders worth 24.8 trillion won (US$21.43 billion).
However, part of the amount of backlog orders are practically an imaginary number. This is because backlog orders include completed ships and ships which haven’t delivered due to some conditions of ship owners. This can be seen in large offshore plants. Six out of seven offshore plants of Hyundai Heavy and Daewoo Shipbuilding and six out of 17 offshore plants of Samsung Heavy have either completed or delayed or cancelled the delivery. Hyundai Heavy and Daewoo Shipbuilding, which have only one offshore plant order placed to build, are forced to downsize the marine business division now.
Shipbuilders which have no orders placed are shutting down their docks. Hyundai Heavy has closed two docks last year and one this year. Daewoo Shipbuilding, which has suffered from financial difficulties, sold two floating docks. Samsung Heavy also shut down two docks. A dock is a facility that help get completed ships on the water and it is the standard of measuring the production scale of shipyards. Daewoo Shipbuilding is planning to sell an additional one or two docks in the second half of this year and Hyundai Heavy is also considering the shutdown of additional docks.
Although the number of orders shows a recovery trend, there are reasons why shipbuilders have to close down their docks. An official from the large shipbuilding industry said, “This is due to a long time lag between when shipbuilders win orders and when they build them. It takes six months to a year to design vessels and two years to design offshore plants. So, winning an order today cannot immediately lead to work next month.”
Some market watchers say that all three shipbuilders will have no choice but to carry out restructuring, including return of salary and voluntary retirement, in the second half of this year. Samsung Heavy Industries President and CEO Park Dae-young, who sent a restructuring plant to the labor union two weeks ago, also said, “If a company cannot secure work, it has to reduce its workforce. We cannot help even with the strong opposition. We cannot collapse all together.”