Endless Nightmares in Korea’s Shipbuilding Industry

Korea’s shipbuilding companies, which suffered from massive losses due to the suspension or cancelation of offshore plant projects and refusal of delivery from ship owners, are now having more difficulties with the cancelation of contracts to build general merchant vessels, including container ships.

On Nov. 5, the world’s largest container ship operator Maersk said that it scrapped the option to buy six very large container ships from Daewoo Shipbuilding and Marine Engineering (DSME). In June, Maersk signed a US$1.8 billion (2.05 trillion won) contract with the DSME to build 11 container vessels with a capacity of 19,630 TEU. At that time, it included the option for six more, as the company thought it would need more container ships. Since Maersk canceled only the option, and did not sign a formal contract, it won’t affect the total number of orders that the DSME has won.

Hyundai Heavy Industries (HHI) also received a suspension notice from Maersk for the option to build eight container ships with a capacity of 14,000 TEU. An official from the company said, “We haven’t received the official cancelation notice. It seems that Maersk suspended the decision.”

Since the cancelation of the option doesn’t mean the actual cancelation of formal contracts, it will have a limited effect on the domestic shipbuilding industry. However, the option generally leads to formal contracts, and shipbuilding companies usually think that there is a high possibility to win orders.

Domestic shipbuilders are bewildered, as ship owners recently broke contracts by reason of delayed delivery of drilling ships, gave up contracts due to lack of funds, and even canceled the option for container ships after recording massive losses in offshore plant projects.
Source: Business Korea