Korean Shipbuilders in Troubled Waters

Korean shipbuilders are struggling to cope with a growing inventory of unsold ships

According to a report by Park Si-soo in the 'Korea Times', 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 below market prices but still struggle to get off their hands. This desperate measures trigger a vicious cycle where potential buyers demand  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.

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 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.

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 the European financial crisis could make the situation worse.