New orders dry up at South Korean shipyards

It is reported that Korean shipbuilders face a double whammy as the global economic turmoil spills into Korea’s real economy. As per report, South Korea’s biggest shipbuilders Hyundai Heavy Industries, Samsung Heavy Industries and Daewoo Shipbuilding and Marine Engineering received one order between the three of them in January as compared with 14 orders a year ago. The report added that along with plummeting demand for new buildings, ship operators are asking shipbuilders to delay delivery of vessels they already ordered, citing current economic conditions.
Under normal circumstances, the operators pay for vessels in installments because one ship can cost hundreds of thousands of dollars. When a vessel is completed and delivered to its owners, the owners pay about half of the contract money to shipbuilders, which completes the deal. Therefore, requests for delayed delivery are an indirect way for the operators to ask shipbuilders to extend the date of their final payment.
A high ranking shipbuilding official said that “Ship operators usually pay about 20% of the contract money on their own and they borrow the rest from financial institutions. But it’s not easy to borrow money from banks in times like this.”