Feature 1 | SOUTH KOREA


Equipment manufacturers hit by declining yard orders


Korean equipment manufacturers are looking for new markets abroad as a slump in demand for new ships in Korea is taking its toll on the suppliers. Consolidation of marine equipment manufacturers appears inevitable as the highly fragmented sector feels the full effects of the recession


M


anufacturers of marine equipment in South Korea, such as deck cranes, pumps, air conditioning


units and the like are suffering a severe dip in orders as the major Korean yards switch production to the offshore business. According to Bong-Ki Kwon, an


international cooperation department manager at the Korean Shipbuilders’ Association (KOSHIPA), more than 60% of new contracts at Korean yards are now for the offshore business. Kwon says that new orders for the first quarter this year are down by 37% on last year’s figures, 1.7 million cgt, compared to 2.7 million cgt in the same period. In addition Kwon says that the yards’


orderbook has declined by 12%, from 35.4 million dwt in 2011 to 31 million dwt this year. “Small to medium sized yards are suffering


the most, the major yards have received orders for offshore plants, but the smaller yards may not have the facilities or the manpower to change to offshore,” says Kwon. KOSHIPA says the market has been hit


by a decline in EU consumption and Kwon says there is no expectation that the market will recover next year. Tat means there is an excess of shipbuilding capacity and the major yards are therefore diversifying into the offshore market. That is bad news for the Korean


equipment suppliers as some 80% of equipment used in the offshore business is imported. When the yards were focused on building ships Korean equipment manufacturers held an 80% market share of the marine equipment business. As a consequence of the decline in ship


orders and therefore equipment orders the Korean manufacturers are looking to markets abroad in an effort to maintain profits. The Korean Marine Equipment Association (KOMEA) has established a


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website www.shipsol.com on which Korean companies can advertise their equipment on the internet. Te site was developed through KOMEA two to three years ago said KOMEA support manager Allen Kang. “Korean companies are marketing their


equipment in Japan, China, Te Philippines, Vietnam, Indonesia, India and Sri Lanka,”


“Small to medium sized yards are suffering the most, the major yards have received orders for offshore plants, but the smaller yards may not have the facilities or the manpower to change to offshore”


explained Kang, and manufacturers are able to update information through the website free of charge. Nevertheless,


the view from some


manufacturers is that many small companies will go bankrupt over the coming year or two as companies fail to pick up any new orders. “Already many companies are in the


control of receivers, next year will see many bankruptcies. Those companies that are involved in the offshore business should be OK, but those only involved in shipping


will have problems, the positive thing is that the major yards will still need Korean manufacturers,” explained one manufacturer. The feeling amongst some Korean


manufacturers is that the surviving companies will grow stronger as they increase their market share following the demise of the weaker companies, though the feeling is that the “Korean market will become inevitably smaller as work moves to China”. Effectively the recession could well


prove to be a turning point for the Korean shipbuilding industry as consolidation in both the yards and manufacturers sees the sector shrink, but leaves those still in the business significantly stronger than the pre-crisis companies. Companies such as Hi Air and NK that


have their own systems and have the ability to invest in further development will remain competitive and will be able to see the crisis through. “But smaller players in a fragmented market will go,” says the manufacturer, he added that many deck machinery companies are vulnerable. Spokesmen for a number of small to


medium sized yards in Japan admitted to using cheaper Korean imports for some equipment, however, the Japanese yards were reluctant to admit the extent of the foreign imports, the issue is a sensitive one as Japanese manufacturers are themselves under pressure. In


China too the equipment


manufacturers are feeling the pressure from the slump in demand, but both Japanese and Korean suppliers are unable to compete on price with Chinese manufacturers, however, many Japanese and Korean yards pointed to the lack of quality which was seeing many buyers returning to the more expensive Korean market for their equipment. This was, however, pure speculation as there are no supporting figures for this view. NA


The Naval Architect October 2012


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