Shipbuilders search for new growth drivers

Korea undoubtedly is the world's top shipbuilding nation, with seven local shipyards ranked among the world's top 10, including the first three spots. The Korean companies, faced with financial crisis touched off by the collapse of Lehman Brothers last fall, are now diversifying their business portfolios, as the global shipbuilding market is expected to remain in a slump. New orders have dropped significantly, vessel prices fell and the country lost its title of the world's No. 1 shipbuilding nation to China.
The government and state-run financial institutions are taking measures, such as funds to buy ships under construction or second-hand vessels from shipping lines to prop up the shipping and shipbuilding industries as they struggle to recover from the fallout of the global economic crisis.
Shipyards are also making efforts to surmount the challenge. While sharpening their competitiveness in areas of offshore plants and high-value, specialized vessels, the companies are investing heavily in alternative energy.
Global downturn and China threat
New shipbuilding orders won by local shipyards fell 90 percent on-year from January through September this year.
Hyundai Heavy Industries Co, the world's largest Hyundai Heavy Industries Co., and other Korean shipyards won 47 new shipbuilding orders in the first nine months of the year, compared to 655 vessels won for the whole of 2008.
"A boom in shipping and shipbuilding industries will not return in the foreseeable future," STX Group chairman Kang Duck-soo said last week. STX is a shipping and shipbuilding-focused conglomerate.
The downturn adds to woes of Korean shipbuilders which faced a formidable rise of Chinese companies, strongly backed by domestic demand.
Korea has been the world's No. 1 shipbuilding nation, with seven companies ranking among the world's top 10 shipyards. The world's top 3 are all Korean -- Hyundai Heavy Industries Co., Daewoo Shipbuilding & Marine Engineering Co. and Samsung Heavy Industries Co. The trio clenched nearly 80 percent of new orders for large container ships last year.
However, China wrestled the title of the world's No. 1 shipbuilding nation from Korea in terms of new orders received during the first nine months of this year.
According to Clarkson, a market research firm, Korean shipyards received orders worth 1.33 million compensated gross tons up till September. Orders taken up by Chinese rivals amounted to 2.42 million CGTs. CGT is a measure of a ship's carrying capacity.
Lee Jong-hwan, an analyst at Shinhan Investment, predicts that the shipbuilding and shipping sector is likely to start recovering in the second half of next year at the earliest.
"The biggest problem is that the market is in oversupply with vessels built when the economy was in good shape," he said.
"If the restructuring of the sector gets delayed, the slump could continue into 2011," he said.
Support on the way
State-run financial institutions are stepping up their support to shipyards and shipping lines, while pushing for the restructuring of the ailing sectors.
The Export-Import Bank of Korea plans to increase shipbuilding-related financing, while Korea Export Insurance Corp. plans to introduce a package support overage program that can reduce the burden on shipping lines.
Up to 500 billion won will be offered as loans to shipyards to build and launch new ships, with efforts made to link direct loans with greater export insurance coverage that can help shipping companies place orders for new vessels.
Commercial lenders have curbed shipping loans as vessel prices have slumped to a four-year low on plunging trade.
Sate-owned Korea Asset Management Corp. has set up a fund to buy idle vessels from shippers or financial companies in order to help them cope with short-term liquidity problems. The KAMCO is currently purchasing vessels through its fund, which will be increased to as much as 4 trillion won.
Meanwhile, creditors of eight mid-sized shipyards undergoing workout programs plan to get these companies to move away from building complete ships and to become components manufacturers.
New growth engines
As the shipbuilding slump is expected to last for a while, shipyards are expanding into new business areas, in a bid to secure new growth engines.
STX' Kang stressed the group should diversify its revenue sources by nurturing businesses such as offshore plants, resources development and alternative energy.
"STX Group's business focus is too much concentrated on shipping and shipbuilding. The two businesses have been the backbone of the group, driving growth of other units, but the situation has changed," he said.
Its bigger rivals are all diving headfirst into alternative energy industry, with Hyundai and Samsung leading the pack.
Hyundai Heavy has recently begun operation at its wind-facility plant Gunsan, North Jeolla Province. Also actively investing in solar energy, the company plans to spend 300 billion won to build a second factory for solar cells by 2010. It expects sales of solar cells and solar modules to reach 1 trillion won in 2010 on rising demand for alternative energy.
Samsung Heavy Industries, the world's second-largest shipyard, is charging headfirst into green energy. With the aim of joining the world's top seven wind-turbine markers by 2015, Samsung plans to expand its capacity to 800 units a year.
Daewoo Shipbuilding acquired a controlling stake of U.S.-based wind power company, DeWind Turbine, in August for 49.8 billion won.