Korean Shipbuilding Industry
Korea is home to seven of the top ten global shipbuilders. In contrast to most other countries that had existing oceangoing shipbuilding capabilities, Korea was a relative newcomer to the global shipbuilding market. The Government of Korea targeted shipbuilding in order to generate foreign exchange earnings in the early 1970s. Subsequently Korean shipbuilders increased their available capacity fivefold during 1975-90, from 0.4 million cgt to 1.8 million cgt, in order to establish a global presence and provide a new industry for its people. The increase coincided with declining global ship prices, which Korean industry officials claim to have further pressured downward by their desire to become a global player.1* Korea has begun to follow the lead of Japan in raising prices on its ships; Korean ships are now highly competitive with those of other shipbuilding nations on the bases of price, quality, and delivery dates.
By the mid 1990s there was considerable concern among global competitors over the significant increase in Korean shipbuilding capacity, which equaled that of all the Western builders combined. French builders pointed out that Korean shipyards employed 45,000 people, compared with 36,000 in 1991, while combined employment in West European yards had fallen from 93,500 to 79,000 over the same period. In light of this, the potential elimination of West European subsidies is especially problematic. For example, French yards had been downsizing for some years, and German yards are undergoing substantial restructuring, partially as a result of difficulties stemming from reunification. Most of the former East German yards were in need of substantial investment for modernization.
During the 1970s and 1980s, South Korea became a leading producer of ships, including oil supertankers, and oil-drilling platforms. The country's major shipbuilder was Hyundai, which built a 1-million-ton capacity drydock at Ulsan in the mid-1970s. Daewoo joined the shipbuilding industry in 1980 and finished a 1.2-million-ton facility at Okp'o on Koje Island, south of Pusan, in mid-1981. The industry declined in the mid-1980s because of the oil glut and because of a worldwide recession. There was a sharp decrease in new orders in the late 1980s; new orders for 1988 totaled 3 million gross tons valued at US$1.9 billion, decreases from the previous year of 17.8 percent and 4.4 percent, respectively. These declines were caused by labor unrest, Seoul's unwillingness to provide financial assistance, and Tokyo's new low-interest export financing in support of Japanese shipbuilders. However, the South Korean shipping industry was expected to expand in the early 1990s because older ships in world fleets needed replacing.
In the 1990s, South Korean shipyards tripled their shipbuilding capacities, while ignoring demand levels in order to achieve market leadership, which they achieved in 1999. This led to overcapacity and destructive prices for the international shipbuilding market. Even the economic and financial crisis in South Korea, which began in 1997, did not lead to a change of course, although the country had been granted substantial international financial support under the condition that it incorporated the principles of a free market economy. Shipyards that were heavily indebted and had been declared bankrupt were not closed down, but freed of debt by the State without capacity restrictions in return. The devaluation of the South Korean currency gave the yards an additional competitive advantage. In 1999, prices from the South Korean yards had been reduced to down to 40 % below production costs, according to an EU Commission report. And since the EU was pursuing a policy to reduce the State aid granted to European shipbuilding companies, the lower prices of the Asian companies meant significant market shares for the South Korean shipyards.
Korean shipbuilders generally considered price to be the most important factor in a purchaser's decision to buy a Korean ship, whereas Japanese and European shipbuilders do not feel this to be true for the majority of their ships. Korean firms tend to build the least complex and therefore the least expensive ships (primarily tankers). European shipbuilding industry representatives generally agreed that in terms of the relative importance of the factors affecting the purchase decision of its customers, price was ranked after quality and delivery time.
Thanks to a historically high level of ordering in 2000, prices recovered to some extent, but the significant drop in orders in 2001 led to a new reduction in prices (total orders were 21 % lower in 2001 than in 2000 based on cgt). While the decline in the world economy in 2001 mainly affected the liquid bulk and the container segments, the events of 11 September had a strong impact on the cruise industry, which saw three bankruptcies and a significant drop in bookings.
The year 2010 saw very stagnant business for shipbuilders worldwide including the three major shipbuilding companies in Korea- Hyundai Heavy Industries, Samsung Heavy Industries and Daewoo Shipbuilding and Marine Engineering. But with the global economy on the rebound, orders for ships are back on the rise. While the demand for transport ships, such as bulk carriers, is decreasing, market requirements for specialized ships with advanced engineering features, such as super-sized container ships or liquefied gas tankers, are increasing.
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