News / January 14, 2009

Green field shipyards in a fix

Newly-established small- and medium-sized shipbuilders in South Korea are being put into a dilemma. While the evaluation of troubled shipbuilders’ credit risk is under way led by financial industry,
s- & m-sized shipbuilders find it difficult to get back to their previous ship block manufacturing business due to the already purchased massive yard facilities and equipment. They also find it hard to continue shipbuilding business as managerial environment shows no sign of recovery. According to industry sources, the green field shipbuilders are now seeking ways to break the stalemate as it got more and more difficult to secure RG (refund guarantee) from banking agencies for the ships on their orderbook and new ship ordering activity got depressed worldwide. One option they consider the most positive is to return to ship block manufacturing business where they had enjoyed ‘good times’. Block building business would enable them to stably make profits by supplying the ship blocks to large shipbuilders as the major firms have got at least two to three year long order backlogs. Nevertheless, ‘returning’ is too late now because they have already invested a lot in shipyard facilities to make inroads into newbuilding business during the past couple of years. In order to go back to block manufacturing, they would have to dispose of those grand-scale yard facilities and equipment because building only ship blocks at a dock is absurd. But continuing shipbuilding business is far from easy as well because without RG, shipowners would not place order for newbuildings or would even cancel the orders that had already been made. Furthermore, even if the smaller shipyards lose newbuilding contracts by shipowner’s cancellation, they cannot announce the fact because it can cause a negative effect on the relationships with marine equipment suppliers and financial institutions. “Small and medium sized shipbuilders cannot get out of shipbuilding business now even if they want, nor can they stay in. They are just paying sharp attention to the policies of the government and financial industry,” said an official at shipbuilding industry.