Feature 1 | SOUTH KOREA Squeezing the middle


Te proverbial rock and a hard place meet somewhere near Busan as small to medium yards finally succumb to years of slack orders, fierce competition and global recession


growth could be seen somewhere near the end of 2013. Most Korean maritime industry


I


observers believe that there will finally be an increase in orders at that time as the slack in the system – in this case over capacity in almost all the major ship operating sectors through over-ordering, a collapse in the global economy first initiated by the 2007 banking crisis and maintained through the Euro crisis to this day - eases. HK Choi, the general manager at


Hyundai Mipo, says that the orderbook for all ship types will not be in equilibrium, that is new ships being ordered to replace those that have come to the end of their life and to cover any growth in markets, for up to another three years. In 2007 an equivalent of 55% of the


global fleet was on order, that figure has now declined to 23%, but Choi says that allowing 4% for replacement vessels and another


3-4% for growth would mean


the industry needed to build at the rate of around 7-8% of the global fleet, or around 130 million dwt a year. With a two year orderbook to be


maintained yards would need only 15% of the world fleet to be on order at any one time. As growth has slumped and markets contracted and with the over-ordering of the previous years the over-capacity in most major shipping markets is likely to continue for some time to come. And that will mean fewer orders and a squeeze on yard over-capacity. Major yards may be able to switch


production to other markets, particularly the offshore sector, but the small and medium sized yards will be very vulnerable to this market downturn. The crisis may well have already


claimed Sungdong as a victim, however, as the yard is already in the hands of the receivers. Such is the harsh reality of twenty


30


SPP cannot compete with Chinese yards on bulk carriers so it will concentrate on high value ships, says SPP executive VP Socrates Park


first century economics. The tragedy is further aggravated by the knowledge that other yards have already lost their battle for survival. Samho Shipbuilding, 21st Century and Shina SB have all reportedly succumbed to the economic storm that is currently holding commerce in thrall. As far as 21st Century is concerned,


the company has run down its orderbook and there is no longer any work. This means that the banks, willing to finance the running of a yard until it fulfils its contractual obligations, will then pull the plug on any new financing effectively killing off the yard. This is the process that Sungdong is


currently undergoing as Bonick Koo, the executive vice president at Sungdong, explains that the yard entered a contractual agreement with the Korean Exim Bank, which was acting as the agent for Sungdong’s creditor banks. The first contract signed in August


2010 included a plan that would revive the yard. Te plan included an agreement by creditors to keep providing refund


t is of little consequence to the workers of Sungdong Shipyard on Geoje Island that the recession may finally end and


guarantees in return for cash savings made through selling assets. “By December 2011 we found that we


could not improve the situation of the yard so we needed more cash and our creditors agreed to inject several hundred million dollars, but Kang Yang-soo [the former senior vice president] quit his position and the bank appointed Sung Yang Ha, an expert in running troubled companies to run the business,” explained Koo. He went on to say that the banks would


eventually convert their credit into shares and will ultimately own 90% of Sungdong shares, currently the Jung family hold 47% of the company’s shareholding with the Korean Military Pension Fund holding a further 34%, Sungdong 7% and 12% is held by small investors. Te financial collapse of Sungdong is


symptomatic of the problems facing all the small to medium sized yards. In 2009 the yard had no orders until the final two months of the year. In 2011 the yard received less than 10 ship orders and this year the figure stands at around 10 ships on order. “The market


is still moving, it is


consistently falling and the market is now too low priced to make a profit on all types of ship,” complained Koo. He said that Chinese yards of a similar size were building ships that were 20-30% lower in price than Korean yards. He pointed to a Chinese yard that won a


contract to build a 208,000dwt bulk carrier, offering the vessel build at US$47.5 million. “I think the construction costs for that bulk carrier is more than US$60 million, steel plate, equipment and materials are all a similar price to us, but their labour costs are lower,” explained Koo. In order to compete with the Chinese


yards the Koreans are looking to build ships faster, improving productivity, but even so the orders remain thin on the ground, with normal profitable production levels at around 40 ships a year, the 10 orders


The Naval Architect October 2012


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54  |  Page 55  |  Page 56  |  Page 57  |  Page 58  |  Page 59  |  Page 60  |  Page 61  |  Page 62  |  Page 63  |  Page 64  |  Page 65  |  Page 66  |  Page 67  |  Page 68  |  Page 69  |  Page 70  |  Page 71  |  Page 72