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Why has South Korea's shipbuilding industry become so difficult?

STX shipbuilding ocean difficult to end the court management process, hyundai heavy industries began to lay off workers, samsung heavy industries due to lack of funds additional issue of shares... Why has South Koreas shipbuilding industry become so difficult?

The crisis pounced, triggering a "cliff of orders"

Although South Korea now USES the term "best export" for the booming semiconductor industry, as recently as the 1990s and early years of the 20th century, it was the "proper name" for shipbuilding.

Back in May, 11 years ago, South Koreas shipbuilding industry exported a record $4.9bn a month. Back then, South Koreas shipbuilding industry once accounted for 40% of the global shipbuilding market, and six south Korean shipbuilders were among the worlds top 10 shipbuilders.

China, with 33 per cent of the market, and Japan, with 25 per cent, were still not on a par with the shipbuilding powerhouse republic of Korea.

In 2008, however, South Koreas commanding lead in shipbuilding came to an abrupt end. This year, the international financial crisis triggered by the subprime crisis in the United States began to impact the global export economy, the shipbuilding industry was affected, shipbuilding power South Korea was not immune - in 2007, South Koreas new ship orders of 5,252; By 2008, that number had fallen sharply to 3,381; By 2009 there were even fewer, just 1,258.

The growing number of shipbuilders is also a problem that South Koreas shipbuilding industry has to face in the face of sharply reduced demand. When shipbuilding boomed in 2005-2006, new orders for ships had not yet been concentrated in large shipbuilding enterprises, and the price of shipbuilding had soared. Many companies rushed to devote themselves to "money-printing shipbuilding industry", and small and medium-sized shipbuilding enterprises in Korea and China mushroomed like bamboo shoots after a spring spring.

At the same time, however, the economy was falling rapidly into recession and the overall shipbuilding industry was deteriorating rapidly, with a sharp drop in orders opening a Pandoras box of low-cost competition. Thus, the cause of the first crisis in shipbuilding was the widening of supply and demand inconsistencies in the great cycle of economic decline.

Transfer to the sea, the market after the first up and then hit

The collapse in global demand for ships has forced most south Korean shipbuilders to look elsewhere. Shipbuilding is a labor-intensive industry, with no orders, meaning tens of thousands of workers will not be paid and an army of unemployed will soon emerge. Operational pressure and corporate unrest have prompted south Korean shipbuilders to quickly turn their attention to the market for Marine engineering equipment.

Just as orders for new ships began to plumb in 2008, world oil prices soared, hovering around $100 a barrel. Oil prices are higher and investors in developing oil fields are growing. As long as the price of crude oil exceeds $50 to $60, the Marine equipment industry is seen as a "profitable business," with both buyers and sellers stepping up investment.

To their credit, a surge in orders for Marine engineering equipment has for some time offset a slump in orders for ships.

But just as orders for new ships are affected by global economic and trade demand, orders for Marine engineering equipment are closely linked to oil prices. In 2014, oil prices began to drop sharply, from a high of $115 / BBL to nearly $50 / BBL. Companies that ordered a large number of Marine engineering equipment began to cancel orders or ask for delay in delivery for various reasons.

In the design and construction of Marine engineering equipment, Korean shipbuilders mainly have the capability of assembly and construction of Marine engineering equipment, and a large number of supporting equipment of Marine engineering equipment need to be purchased from foreign enterprises. Marine engineering equipment is expensive, and ordering a large piece of equipment can cost hundreds of millions of dollars.

Shipping companies have invested heavily in building these Marine equipment, and if they dont deliver on time, the cost of labor and financing will snowball. These losses were faithfully reflected in the books of Korean shipbuilders in 2015 and 2016.

South Koreas shipbuilding "big three" hyundai heavy industries, samsung heavy industries, daewoo shipbuilding ocean in this round of "entrepreneurship" also set a trillion won deficit records. South Koreas shipbuilding industry has been hit harder by falling oil prices as demand for Marine equipment continues to fall.

The end of the depression, through the winter into the spring?

The severe downturn in the shipbuilding industry has had a huge impact on the labor relations of the shipping companies, with staff reductions in the juji and ulsan regions, where hyundai heavy industries, samsung heavy industries and daewoo shipbuilding are located. The number of people covered by employment insurance in ulsan alone fell from 61,000 in 2013 to 38,000 in August 2017. Over the same period, the number of people covered by employment insurance in juji fell from 93,000 to 81,000.

The great depression, which began in 2008, is now showing signs of ending on all fronts.

According to the research of UKs claxson research company, the global trade volume is on the rise. It is estimated that in the next 10 years, the average annual volume of ship trade will reach 120 billion us dollars, more than three times of the global new ship order volume in 2016.

Meanwhile, with the disappearance of many small and medium-sized shipbuilders, global shipbuilding capacity is down 40 per cent from 2012. For South Koreas shipbuilding industry, which has survived a harsh winter, spring is creeping closer.

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