Shipbuilders restructuring unavoidable

Shipbuilding slump such as new order drought and existing order cancellations could last as much as 10 years, according to a South Korean analyst. Especially, small and midsize shipbuilders could face closure and urgently need restructuring such as selling facilities or changing business.

Yang Jong-seo, a senior analyst at a foreign economy institute of the Export-Import Bank of Korea, said “Shipbuilding recession is expected to continue for quite a long time even after global financial crisis is resolved. In case of newly-established shipyards, their existence could be in jeopardy.”

“Since August last year newbuilding order-intakes have decreased drastically and from the third quarter of this year requests for order cancellations or delivery delays would mount and the difficulties at shipyards could last for a decade,” Yang forecast.

South Korean shipbuilders have received almost no newbuilding orders this year to date and 6%-7% of existing orders have been cancelled while there are fears that further cancellations could occur going forward.

“In containership sector, the tonnage is already oversupplied and commercial traffic has decreased amid global economic downturn. The sector will suffer a severe slump until 2015/2016 and the financial crisis could delay the sector’s recovery by two years or so,” Yang said.

“Tanker market is faced with worse situation than boxship sector. Advanced countries’ demand for oil is expected to decline due to alternative energy development. Even if 20% of tanker newbuilding orders are cancelled, there will be no problem as to demand and supply balance in the tanker market.” There are also many idling LNG ships with their average operation days per year amounting to just 180 days, which is the result of the massive newbuilding orders in 2004.

He said small and midsize shipbuilders would be hit hardest by the newbuilding market slump. In 2004, there were just 13 smaller shipbuilders in South Korea but now the number increased to 27. Yang said, “Newly-established small and midsize shipbuilders were deprived of the opportunity to enter into the market, due to the financial crisis. The shipbuilders which have not had their yard facilities completed yet need to contemplate selling facilities to large shipyards or diverting their business.”