Significance behind Resumption of Shipbuilding

South Korean shipbuilders, who had been struggling with tumbling orders due largely to the global financial crunch, are winning bids actively. It especially draws attentions as the major shipbuilding companies are regaining its efforts for winning deals. So far major shipbuilders have been hesitating to participate in bids for maintaining its profits.
Samsung Heavy Industries Co. (SHI), one the world’s major shipbuilders, said on March 9 that it successfully won bids for four units of oil tankers and one unit of maritime equipment worth $ 750 million in total. On the same day, SHI inked the contract for the first order of liquefied natural gas-floating production storage offloading (LNG-FPSO), a long-term contract which had been made with a European oil company Royal Dutch Shell last year.
Hyundai Heavy Industries (HHI), which did not have vessel orders for more than one year, is said to be close to win a deal for vessel as the recent negotiation with the European ship owners are seeing progress.
The current situation of HHI and SHI winning shipbuilding contracts could be interpreted in various ways. There were differing views from the industry when Daewoo Shipbuilding and Marine Engineering (DSME), STX and Sungdong Shipbuilding and Marine Engineering have sequentially won bids for vessels late last year. Some said that winning shipbuilding contracts at relatively low prices was necessary for survival of the companies to earn operating capital. Meanwhile, others said that it was better to win more contracts even at lower prices because the prices of vessels will not see a prominent change.
The resumption of receiving orders of Hyundai Heavy Industries (HHI) and Samsung Heavy Industries (SHI) must not be confined to a result of obtaining contracts at low cost or a change to the company’s strategy. As the backlog of orders decreased, it was a matter of time before this happened. From the HHI and SHI’s stance, there has been pressure to meet the aimed target of orders which eventually led to regaining efforts to win contracts again, however low the ship price may be.
Researcher Lee Jae-Won of Tong Yang Securities Inc. said "It was forecasted that large-sized companies would resume receiving orders and therefore, it is difficult to conclude that HHI and SHI have fired a flare to begin a competition for winning low-priced contracts. Shipbuilding companies will continue to win contracts to maintain their backlog of orders until the first half of this year, even if it means sacrificing ship prices."
Researcher Chun Jae-Cheon of Daishin Securities Co. said "Orders for merchant vessels from the end of last year up to the first half of this year will be made to fill in the transferred or delayed amount of orders. Competition for winning contracts is projected to grow fiercer from the second half of this year."