Shipbuilders in troubled waters
By Park Si-soo
Korean shipbuilders are caught between a rock and a hard place. The prolonged global economic downturn has ship owners killing orders or requesting a postponement on deliveries as they struggle to cope with the financial squeeze. This has Korea’s once-mighty shipbuilding industry down on all fours.
Shipbuilders say they are struggling to cope with a growing inventory of unsold ships, which they put up for resale at belowmarket prices but still struggle to get off their hands. This desperate measures trigger a vicious cycle where potential buyers demand for even lower prices for their ships, industry sources say.
Daewoo Shipbuilding and Marine Engineering (DSME) is scrambling to find takers for two 320,100 deadweight tonnage (DWT) crude carriers, after Taiwan’s Today Makes Tomorrow (TMT) withdrew the orders for the ships it ordered for in 2007.
It’s difficult to find new owners in this environment when each of the ships originally cost around $160 million won, and TMT’s 10 percent advance payment doesn’t come close to soothing Daewoo’s losses. Company officials admit it would be fortunate to get anybody to pay more than $90 million for any of the ships.
According to industry sources, there is a bidder for the DSME ships, but for $79 million each. If DSME can’t agree on the prices, another option is to sell the ships to DK Maritime, an affiliate specializing in maritime transportation, not a market that has been in high spirits either.
STX Offshore and Shipbuilding has recently put up for resale three 57,000-DWT bulk carriers as Greece-based shipping company Trojan Maritime gave up its ownership of the three prior to delivery. Each ship is up for grabs at $25 million, down 40 percent from its initial price of $40 million, according to STX.
Given low demand for bulk carriers, it’s unclear whether there will be a market for them.
Requests for delaying delivery are another headache for local shipbuilders.
Early this month, Samsung Heavy Industries was baffled after Israeli ship owner, Zim Line, made another request to the company to push back its delivery of nine 12,600- twentyfoot equivalent units (TEU) container carriers, each worth $170 million. Zim Line signed the contract with Samsung in 2007 and originally wanted the ships by 2009. Now, Samsung is asked to deliver them in 2018 when its Israeli client believes it will be less affected by money problems.
Zim Line is also considering asking Hyundai Samho Heavy Industries to delay the delivery of four ships that was to be delivered by 2015.
The Israeli firm is also considering asking for postponed delivery of four other ships in the making by Hyundai Samho Heavy Industries.
The four ships are contracted to be delivered by 2015. Market insiders are worried about increasing contract cancellations and requests for postponed deliveries, which cause extra costs for resale and maintenance.
Yet they said shipbuilders have no choice but to accept such calls for health relationship with clients.
“Some clients even ask for postponing the deadline for advance payment of ships they ordered,” said a shipbuilding company executive. “We have no choice but to accept such requests, particularly in times of global recession, as part of client relations management.” According to Clarkson Research, a world’s leading shipping intelligence provider, as of late March, the global demand for maritime transportation dropped to 197 million compensated gross tons or CGT, the lowest level in six years.
As of late April, Hyundai Heavy Industries won contracts worth $1.8 billion, 7.5 percent of its target sales of $24 billion for this year. Samsung Heavy Industries earned contracts worth $5.8 billion, while Daewoo Shipbuilding and Marine Engineering struck deals worth $3.9 billion.
STX won contracts worth $2.2 billion, 6.8 percent of its target sales of $15 billion for this year. Analysts say European financial crisis could make the situation worse.
“Given that major orders for shipbuilding come from Europe, the number of contract cancellations and postponed deliveries could increase further,” said Hong Sung-in, a senior researcher at Korea Institute for Industrial Economics and Trade.
“Luckily,” he said, “the overall market condition is better than that of 2009,” referring to another global financial crisis started by the collapse Wall Street banking giant Lehman Brothers.
Many analysts predict that the global shipbuilding market will become bullish from later next year.