Daewoo Shipbuilding and Marine Engineering (DSME) announced that it won’t have to let go of as many employees as expected as its earnings have improved. While the company and its creditors projected about 7.5 trillion won ($6.6 billion) in revenue this year, DSME said the situation has improved and the company is likely to ink over 9 trillion won in revenue.
DSME isn’t the only shipbuilder anticipating calmer seas ahead. Korea’s biggest shipbuilders have started inking more orders this year, a change that some think signals the end of the dramatic downturn that has plagued the industry since 2008.
Here are the basics on the slow recovery of Korea’s shipbuilding industry and the crisis that very nearly caused it to sink.
Q. Korean shipbuilding has struggled since 2008. What state is the Korean shipbuilding industry in today?
Currently, all three of Korea’s largest shipbuilders – Hyundai Heavy Industries (HHI), Samsung Heavy Industries and DSME – are still undergoing restructuring. The situation is worse at smaller companies – according to a report from the Export-Import Bank of Korea earlier this month, only one out of 10 midsized shipbuilders inked any orders in the third quarter this year.
Shipbuilding used to be one of the highest earning industries in Korea back in the early 2000s, but the financial crisis in 2008 proved near-fatal for shipbuilders as the volume of global trade plummeted and the demand for ships plunged. While over 5,000 ships were ordered globally in 2007, the number declined to roughly 3,400 in 2008 and then fell to around 1,200 the following year.
The bigger problem was that the shipbuilders had already expanded their facilities to meet growing demand, unaware that such a crisis would freeze the global economy. Shipbuilders hurriedly turned to offshore plant construction in order to survive as oil prices soared. The decision ended up putting the companies in even deeper water.
Firstly, Korean shipbuilders lacked expertise in designing offshore plants, making the process more expensive and longer than expected. To make matters worse, oil prices plummeted in 2014, causing customers to cancel their orders or postpone delivery. The losses from the offshore plant business snowballed and were reflected on shipbuilders’ balance sheets in 2015 and 2016, hugely damaging their earnings reports.
In 2016, all three major shipbuilders submitted turnaround measures to their creditors and the government. The proposals included layoffs, selling assets and subsidiaries and pulling up productivity.
Q. But recent news stories have reported that this year Korean shipbuilders have taken more orders than companies from any other country in the world. What’s changed?
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