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Sunday, May 8, 2016
Global shipbuilding depression appears on horizon for 2017; what are implications for Jones Act shipbuilding?
By Michael Hansen @ 3:10 AM :: 3799 Views :: Jones Act

Global shipbuilding depression appears on horizon for 2017; what are implications for Jones Act shipbuilding?

by Michael Hansen, Hawaii Shippers Council, May 3, 2016

World Maritime News published on May 2, 2016, a news article, “Mounting Concern over Lack of Orders in South Korea,” reporting that South Korea’s three big shipbuilders received “zero” newbuild ship orders during April 2016.

This is a continuation of a slowdown in newbuild ship orders that began in 2015, and is anticipated to hit with full effect in the year 2017 when existing orders begin completion.

There is an oversupply of ships on the water worldwide, international freight rates are low and global economic growth is slow, leading shipowners to suspend or not place newbuild orders.

The Jones Act shipbuilding market is more or less completely separate from the world shipping market. The U.S. ship build requirement for Jones Act shipping coupled to the extraordinarily high cost of constructing self-propelled oceangoing ships in the U.S. effectively walls off the market from the world. The major U.S. shipbuilding yards are not competitive and thus cannot export ships for use internationally, while competitive foreign shipbuilding yards cannot sell their ships into the Jones Act market.

However, despite its separate nature, it appears a similar downturn in U.S. shipbuilding is currently developing that may result in closure of one or more of the three major U.S. shipbuilding yards.

Quote:

South Korea’s top three shipbuilders, Hyundai Heavy Industries, Daewoo Shipbuilding & Marine Engineering and Samsung Heavy Industries, won zero newbuilding orders in April, opening up a possibility of significant restructuring measures, Yonhap News Agency reports.

South Korean shipyards won only five construction deals during the first four months of 2016, which is around five percent of the average amount posted in previous years, Yonhap said.
The slide in orders was attributed, among other factors, to increased competition from Chinese and Japanese shipyards.

As a response to the global slowdown, South Korean government recently launched a corporate restructuring plan, targeting its financial troubled industries, including its shipping and shipbuilding sectors.

In a three-track plan revealed by the country’s financial regulator, the Financial Services Commission, the shipyards will need to implement self-restructuring measures including massive layoffs and sales of non-core assets.

As the first step within the framework of its massive job-cutting plan that is expected to include up to 3,000 jobs, Hyundai Heavy Industries recently laid off 25 percent of its executives.

In 2015, the combined loss of the three largest shipbuilders added up to 7.7 trillion won (approximately USD 6.7 billion). The crisis has spilled over to 2016 and there are no signs of recovery during this year, Yonhap wrote citing an industry source.

However, despite the historically low level of newbuilding orders seen in 2015, and a continued trend in 2016, the South Korea’s three largest shipbuilders still hold the largest orderbooks, taking into account their order backlogs.

The shipbuilding contracts won prior to this crisis may see the shipyards through this year; however, the real crisis is expected to hit the South Korean shipbuilding industry in 2017 if the situation does not improve.

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