Builders counter accusations

Korean shipyards refute European accusations that ships are being sold too cheaply, and that IMF funds are being used to bail out ailing yards.

Despite heavy criticism from European shipbuilders, the Koreans say that the low prices they have been quoting for newbuildings will still allow highly productive yards to make a profit, or at least break even. However, they do acknowledge that some losses have been made, due, they say, to currency fluctuations. They all say that losses can only be borne by a yard on a short term basis, otherwise it will go out of business. The Koreans cite the global free market, and believe that the most competitive yards will be the ones who survive. There is a consensus among the big Korean yards that some of the smaller domestic yards are likely to go out of business in the next couple of years.

“We hear in the press that the Europeans say that Korean yards are quoting prices which barely cover material costs. This is an exaggerated statement which they need to justify,” says B T Ahn, general manager, ship sales department at Hyundai Heavy Industries. “We still need to buy some materials from abroad with our weak currency. It’s an open market, and we at Hyundai continue our business on our own, without subsidies,” he adds, referring to the 9 per cent still available to European yards.

The large builders also point out that their government has set up a Fair Trade Commission, which acts as a watchdog.to ensure that chaebols do not subsidise any ailing division with the profits from elsewhere in the company.

S D Lee, director of the Korea Shipbuilders’ Association says that the Korean price reduction was natural following the economic crisis which caused the Won to devalue by 40 per cent. At the same time, the number of labour disputes dropped as workers became afraid of losing their jobs, says Mr Lee. Workers now have greater commitment, which improved productivity greatly. Also, the cost of raw materials dropped, eg steel, as well as local equipment, he adds.

Bankrupt yards

Another concern for Europeans is whether or not money from the IMF is finding its way into the bankrupt Halla and Daedong yards. Countering this, Mr Lee says the IMF fund is for all Korean industries, and that the IMF delegation in Seoul is keeping a close eye on how the funds are being used. Daedong and Halla’s creditors will have to decide by their own commercial judgement whether they continue to support the yards, or pull out, says Mr Lee, but he does not believe the latter will happen. “How will they ever get any of their investment back if the yards close?” he says.

“Anyway, we cannot understand why Europe is complaining,” continues Mr Lee. “European yards have successfully lobbied their governments to continue to give them 9 per cent in direct shipbuilding subsidies beyond the original abolition date at the end of 2000. Also, yards in Germany, Spain and Greece have received funds from the European community,” he adds.

Sorting out the Chaebols

As part of Korea’s financial restructuring, the government has set the chaebols the target of reducing their debt to capital ratios to 200 per cent, or below. This they are doing, in the case of Hyundai and Samsung in the form of share issues to raise capital. Hanjin Shipping sold and chartered back a large portion of its container ship fleet to achieve the same goal. Daewoo is looking for an alliance with foreign investors to form a 50/50 joint venture company to run the shipyard, as a means of bringing down its capital/debt ratio.