Shipyards to close down 23 pct. of docks

By Yoon Ja-young

Ailing shipbuilders will close around 23 percent of their docks for the next two years while shedding 32 percent of their workforce. Additionally, the government and public entities will place orders for over 250 ships, worth 11 trillion won. These are parts of a plan to enhance competitiveness of the sector hit by the global recession and falling demand.

“Though the global market for shipbuilders will slowly recover from 2018, it is expected to be sluggish overall until 2020, with orders failing to recover to the average level seen between 2011 and 2015,” Strategy and Finance Minister Yoo Il-ho said at an economy-related ministers’ meeting, Monday.

At the meeting, the government announced restructuring plans for the shipbuilders and shippers.

Docks being used by the country’s top three shipbuilders ― Hyundai Heavy Industries, Samsung Heavy Industries, and Daewoo Shipbuilding and Marine Engineering (DSME) ― will be slashed to 24 from 31. They will also decrease their workforce to 42,000 from 62,000.

The government decided to maintain the “Big 3” in the shipbuilding industry despite advice from McKinsey that DSME isn’t likely to survive on its own.

“DSME will be shifting its focus to sectors where it has competitive edge such as merchant ships. In the mid-to-long term, it will seek a new owner so that it can be managed by a large shareholder with expertise,” Yoo said.

DSME, which is under the control of creditors, will be shedding 41 percent of its workforce by 2018. It will sell all its real estate except for two floating docks and shipyards. The shipbuilder will be decreasing its offshore plant business, while focusing on building large LNG ships and high-efficiency mega container ships.

“The government basically plans to sell DSME. However, normalization of the company should come first. The core is to seek ways for the most efficient sale, bolstering the sector where it has a competitive edge while decreasing the part where it is weak,” said Toh Kyung-hwan, deputy minister for industrial creativity and innovation.

Hyundai Heavy Industries, meanwhile, will be splitting off businesses that aren’t related to shipbuilding, such as solar and wind energy, and will nurture sectors such as smart ship systems instead. Samsung Heavy industries will also be selling off hotels and other assets unrelated with production, on top of a 1.1 trillion won capital increase. It will be focusing on environment-friendly and high value added merchant ships.

On top of decreasing work in offshore plants, the government plans to strengthen its evaluation on the profitability of orders. The big three companies have been facing criticism that they damaged themselves by winning orders through low bids due to excessive competition.

The order for 250 ships is to help the shipbuilders survive the falling global demand.

The government also plans to inject 3.7 trillion won by 2020 in regions where shipyards are located, to minimize the damage to the local economy. Shipyards are concentrated in five areas ― Ulsan, Busan, and South Gyeongsang, South Jeolla and North Jeolla provinces ― where not only shipbuilders but also their suppliers are located. The regional economies have been hit directly with the number of businesses which have wages in arrears increasing by 36.5 percent from last year. The government plans to provide emergency management funding and loans. Seeking new growth engines for the region is also on the agenda. The government said that the reliance on shipbuilding in the five regions will decrease to 43 percent in 2025 from 65 percent in 2014 following restructuring.