South Korea plans to spend $9.6 billion on ships from local yards to stave off the collapse of its shipbuilding industry, the latest evidence of the wrenching impact of a prolonged slump in global trade.
For decades, shipbuilding has been a driving force of the South Korean economy. The country is home to the world’s three biggest shipbuilders measured by order volume, and last year ships accounted for 7.6% of South Korea’s exports.
But a steep slide in orders has weighed heavily on the industry after the 2008 global economic crisis pummeled demand from shipping companies and lower-cost Chinese shipbuilders began to eat into South Korean companies’ business. The recent stagnation of global trade has pushed the companies close to the breaking point.
New vessel orders won by South Korean shipbuilders in the past nine months of this year were down 87% from the year-earlier period, according to the trade ministry.
All the major South Korean shipyards, including the big three— Hyundai Heavy Industries Co., Daewoo Shipbuilding & Marine Engineering Co. and Samsung Heavy Industries Co.—have sold noncore assets and shed staff under bank-led restructuring plans.
The trade ministry said Daewoo’s main creditor, state-backed Korea Development Bank (KDB), would take into consideration any future improvement in Daewoo’s operations and market conditions before potentially pursuing a sale or some other form of merger or acquisition of Daewoo.
Consulting firm McKinsey & Co. said earlier in November that Daewoo is unlikely to survive past 2020 if the market downturn continues. Daewoo said the report was exaggerated.
A glut of container ships in the water and not enough cargo to fill them in the past few years has led to record-low freight rates, hammering the industry and prompting owners to further cut or push back new ship orders.
Korea throws its shipbuilders $9.6 billion lifeline
