South Korea shipbuilders in shambles

South Korea shipbuilders in shambles
A man cycles past an under-construction Maersk container ship at a Daewoo shipyard in Okpo, south of Busan.

Seoul - Oil price slump, economic slowdown sap demand for tankers and container ships

Follow us on Google News-khaleejtimes

Published: Sat 21 May 2016, 7:09 PM

Last updated: Sat 21 May 2016, 9:12 PM

After more than a decade of global dominance, South Korea's shipbuilders face an unprecedented crisis that threatens the very survival of one of the flagship industries of Asia's fourth largest economy.

South Korea's 'Big Three' shipbuilders were once considered the holy trinity of Korea - controlling nearly 70 per cent of the global market after seeing off their European and Japanese rivals in the 1980s and 1990s.

Year after year, the shipyards of Hyundai Heavy Industries, Daewoo Marine and Shipbuilding and Samsung Heavy Industries churned out massive cargo ships, oil tankers and offshore drillers for shipping firms and energy giants around the world.

But a prolonged slump in oil prices and the global economic slowdown sapped demand for tankers and container ships, while overcapacity, regional rivalry and competition from cheaper Chinese shipbuilders squeezed profit margins.

The three firms racked up a collective loss of 8.5 trillion won ($7.4 billion) last year, while outstanding orders among all South Korean shipbuilders hit their lowest level in 11 years in February.

"Orders are drying up. We are faced with an unimaginable situation at which our dock may soon be empty," Hyundai Heavy chairman Choi Kil-Seon said in a letter to employees in March.  "Even banks are so reluctant to lend to us. This is the harsh, undeniable reality we are facing today," Choi said.

Hyundai - the world's top shipbuilder by sales - has reported a net loss for two straight years, totalling five trillion won. It posted its first net profit for more than two years in the first quarter of 2016, but Choi said that was largely thanks to lower raw material prices and a weaker Korean currency.

The company became "oversized and complacent" during the boom years of the 2000s, he said, urging "bone-crushing efforts" to compete against Chinese shipbuilders that won more than half of all new global orders this year.

"If we can't compete against Chinese ... our jobs will be eliminated," he said.

Yang Jong-Seo, analyst at the Export-Import Bank of Korea, said the next two years would be the "worst years ever" for the shipbuilders as they embark on a period of painful, state-led restructuring.

"I think the situation will hit the bottom in the latter half of 2017 and revive in 2018. The key question is whether the shipbuilders can manage to stay alive until then," Yang told AFP.

"If they end up falling apart, I'm afraid the pillar of the global shipbuilding industry will really shift to China," he said.

The knock-on effect of any such collapse would be enormous.

The southern port of Ulsan and Geoje island - home to the three shipbuilders' main docks - are the bedrock of a regional economy that relies heavily on the industry for tax revenues and consumer spending by nearly 200,000 workers.

Hyundai shed more than 1,000 jobs at its Ulsan shipyard in 2015 and is reportedly planning to lay off around 3,000 workers this year. - AFP

More news from