Price reduction to accept orders! The last fight of the South Korean shipbuilding industry
2017-01-09 08:00
In 2016, the number of orders received was even less than the number of order cancellations throughout the year, bringing the backlog of orders to its lowest level in the past 13 years. Affected by the drastic drop in new ship orders, the South Korean shipbuilding industry is facing an unprecedented crisis. Lowering prices to secure orders may be the South Korean shipbuilders' last resort in their competition with China. The global new shipbuilding market will likely face another turbulent year in 2017!
Recently, Yoo Byeong-Se, executive director of the Korea Shipbuilders & Offshore Shipbuilders Association (KOSHIPA), urged South Korean shipbuilders to lower new ship prices, warning of potential bankruptcy risks.
According to South Korean media reports, Yoo Byeong-Se stated that during the current downturn in the global shipbuilding industry, the first thing South Korean shipbuilders need to do is to downsize their operations. He also pointed out that the prices offered by Chinese shipbuilders are currently about 10% lower than the South Korean average. For South Korean shipbuilders, failing to win new ship orders due to higher prices compared to China is not a viable option. Yoo Byeong-Se indicated that both price and technology are crucial in attracting ship owners to place orders.
It is understood that the backlog of orders in the South Korean shipbuilding industry has fallen to its lowest level in the past 13 years. In 2016, the three major South Korean shipbuilders received far fewer new ship orders than their initial annual targets, with the number of orders received even falling short of the total number of order cancellations for the year. According to South Korean media reports, data shows that the total order value for the three major South Korean shipbuilders last year was $6.47 billion, only 15.1% of the initial annual target of $42.8 billion.
The latest data from Clarkson shows that as of the end of December 2016, the backlog of orders for South Korean shipbuilders fell to 19.89 million CGT, the lowest level since June 2003, when the backlog stood at 19.14 million CGT. In December last year, South Korean shipbuilders only received one 86,000 CGT new ship order.
By the end of last year, Chinese shipbuilders ranked first globally in terms of order backlog, with a total of 30.49 million CGT; Japanese shipbuilders ranked second with 20.06 million CGT; and South Korean shipbuilders ranked third, with an order backlog 170,000 CGT lower than Japan's. This is the first time in the past 17 years that Japanese shipbuilders have surpassed South Korea in terms of order backlog.
In the global new shipbuilding market, South Korean shipbuilders have been the undisputed leader. Since 1999, South Korea's shipbuilding industry has consistently maintained a larger order backlog than Japan. During the market boom in 2008, South Korea's order backlog even exceeded Japan's by 30 million CGT. However, currently, South Korea's order backlog has fallen to less than 20 million CGT.
While the global shipbuilding industry faces a shortage of orders, Japan's shipbuilding industry has managed to surpass South Korea due to its proactive structural adjustments through mergers and collaborations to address the crisis; increased domestic ship owner orders have also contributed to Japan's higher order backlog. The Chinese shipbuilding industry, particularly state-owned enterprises, has overcome the crisis with government support under the "national ships for national use" policy.
Compared to China and Japan, South Korea's shipbuilding industry, along with its domestic shipping industry, has not been successful in structural adjustments and is facing the worst-case scenario. If the global shipbuilding industry continues to decline, the gap in order backlogs between South Korea and China and Japan may widen further, potentially eliminating any chance of a comeback. This is clearly an unacceptable situation for South Korea's pillar shipbuilding industry. In the current market, the only way to compete with Chinese shipbuilders for more orders is to lower prices. With no short-term recovery in sight for the shipbuilding market, if South Korean shipbuilders resort to price cuts to secure orders, it is foreseeable that the global new shipbuilding market will face another turbulent year in 2017!
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