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Shipbuilders’ Excessive Investment or Niche Market Development?

Shipbuilders’ Excessive Investment or Niche Market Development?

Posted March. 09, 2007 05:41,   

한국어

With the current international shipbuilding boom in full swing, increasing numbers of small and medium-sized companies are entering the race.

Many were once companies that specialized in manufacturing ship components or repairing vessels, and in some cases, construction companies or train manufacturers have taken over small ship building companies and entered the market.

Established vessel companies, such as Hyundai Heavy Industries, Samsung Heavy Industries, and Daewoo Shipbuilding & Marine Engineering, have expressed concerns, saying, “excessive investment in the boom can result in a collective collapse in the industry.”

New companies, meanwhile, said that they chose to concentrate on the niche market, showing their confidence in the success of their businesses. The result, however, remains to be seen.

Active facility investment in the robust shipbuilding market-

The Ministry of Commerce, Industry and Energy said, on March 3, that roughly a dozen new shipbuilders have been established since 2000. Their goal is to receive ship-making orders from abroad. Currently, the Korea Shipbuilders` Association, a non-profit organization of shipbuilders that receive orders from overseas, consists of nine members. On this fact alone, it is visible that the number of ship makers has doubled in just five years.

Facility investments by new shipbuilders are active as well. Daehan Shipbuilding, an affiliate of Daeju Group, invested 1 trillion won ($1.05 billion) in Haenam, South Jeolla Province, to construct a shipyard; and C & Shipping is constructing a shipyard on a 14,200-hectare site in Mokpo, South Jeolla Province.

SLS Shipbuilding announced a 520 billion won ($550 million) investment plan in Gunsan, North Jeolla Province, early this year. Sung-Dong Shipbuilding & Marine Engineering and SPP Shipbuilding, former makers of ship blocks, have also completed their new facility investment.

Increasing numbers of new shipbuilders and increased active investment are the result of the world shipbuilding market boom, which began in the 1990s.

Concerns about structural disruption in the shipbuilding industry-

Established shipbuilders are unhappy with the vast numbers of new competitors. Process industries like the shipbuilding industry are so big that it is easy to expand but difficult to shrink. Since the industry is not too resilient to changes in demand, especially during sluggish periods, cutthroat competition among builders is inevitable. Severe competition would lower the price of orders significantly.

Another problem is a structural disruption in the shipbuilding industry. The industry must be balanced with diverse businesses including shipbuilding, block making and ship repairing. If there is a high concentration of shipbuilding, however, the industry’s supportive businesses will weaken. This is an unfortunate situation that the Korean shipbuilding industry will need to address.

“Major builders are constructing large block plants in China because it is difficult to find competitive domestic block manufacturers. Another problem is that small and medium sized shipbuilders are using high salaries to lure highly-skilled workers from competing companies,” said an executive of one of the top three ship-makers.

Prospect for increasing bulk carrier demand-

In the meantime, new shipbuilders claim that people should have a microscopic perspective, monitoring the industry situation by the use or size of vessels instead of the industry as a whole.

They assert that the demand for bulk carriers and vessels carrying petrochemicals will remain constant for at least ten years.

The demand for bulk carriers, in particular, is expected to be strong because many vessels currently in operation were built more than 20 years ago, and the transportation of raw materials is increasingly active.

“Choice and concentration will determine the survival of new shipbuilders,” explained Yoo Gwan-hong, chairman of Sung-Dong Shipbulding & Marine Engineering.

“Korea’s shipbuilding industry depends on excellent human resources and competent block makers. We can maintain our niche market and be technologically superior to China if we implement comprehensive management of experts and block makers,” said Kim Yong-seung, president of C & Shipping.



changkim@donga.com