Korean Shipyards in Troubled Water

 

The Big Three shipbuilders in South Korea ventured into offshore oil rigs starting around 2010 with a goal to avoid direct competition with China. The idea appeared excellent then, with oil prices climbing toward $100 a barrel.

 

Today the strategy seems to have backfired. The deep-ocean strategy is coming back to bite Korean shipyards.

 

The Hyundai Heavy Industries, Daewoo Shipbuilding & Marine Engineering and Samsung Heavy Industries  “excessively competed to win offshore plants to make up the gap caused by falling demand for ships,” Yang Jong-seo, a research fellow at the Korea Eximbank Overseas Economic Research Institute (KERI), a government think-tank, said. “That excessive competition was their biggest mistake.”

 

What's more, worldwide, the shipbuilding industry is seeing fewer orders as a sluggish global economy and low freight rates discourage ship owners from buying new vessels. 

 

This week is a test for the Big Three as they begin reporting second-quarter earnings. Analysts forecast the companies will post profits, but shares of the three companies have been plunging on media reports of a challenging quarter.

 

Shipbuilding has been central to Korea’s economy since the 1970’s. Ships accounted for 8.5 percent of the country’s total exports through June 20 of this year, up from 7 percent for all of 2014, according to the trade ministry.