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Current Status of Global Shipbuilding Industry and Korea¡¯s Global Leadership in Shipbuilding and Offshore Industry.
Attached, is the text of the lecture I gave at the Advanced Industrial Strategy Program in Seoul National University on November 18, 2015, the gist of which is as follows.
The media is bubbling over the Korean Shipbuilding industry as if it is coming to an end, shaking this valuable industry. I view the industry from the opposite angle from the media. It has short term shade, but the more I see, the stronger and the more dependable images it shows. The physical condition of Korean shipbuilding industry is no comparison to other global shipbuilding industry. It has its own problems but nothing that cannot be overcome. I have carefully watched to point out few problems that the industry is presently facing.
Firstly, I note the sharp drop of oil price, distrust of Chinese economy and uncertainty caused by the imbalance of supply and demand of the shipping market. Looking back, I do not recall any time in history when an industry was managed amidst certainty. Uncertainty has been a partner for the industry and the opportunity to take the industry into next stage.
Secondly, we see the exposure of record deficit of the Korean shipyards. But, we are overlooking the tremendous surplus the shipyards enjoyed before the recession. That profit gave shipyards enough physical stamina deep inside their bone, enough to overcome current deficit. We feel like the shipyards have exposed the deficit on purpose. They can use the deficit as an excuse to restructure their corporate culture and organization that became too loose as a side-effect of the boom.
Thirdly, we face the misunderstanding about the offshore project. The projects are being treated as the arch villain to ruin the whole industry, but they are not. We must protect the offshore projects and we have the ability to do so. The main problem with offshore projects is the EPC (Engineering, Procurement and Construction) system. Unlike the shipbuilding, various forms of changes in the specification take place and clients are expected to intervene in each stage. This is related with the oil price fall and transformed into the ¡°Market Claim¡±. Korean shipyards have enough strength and power to stand against these ¡®Market Claims¡±. After completion of the ¡°offshore plant specification standardization¡± and ¡°contract standardization¡± work which is currently in progress, Korea will have the dominant power in the offshore market in the days to come.
Every time the industry faces difficulty, it has created a niche on its own. The boom which continued through 2003-2008, burst its bubble with Lehman Brothers¡¯ bankruptcy in 2008. It was the offshore projects that saved the shipbuilding industry. Then, the collapse of oil price drove even offshore projects into the bottomless pit. But, low oil price created Contango demand and called for the newbuildings orders for tankers led by VLCCs. On top of that, IMO¡¯s NOx Tier III regulation helped the anxious shipyards with advanced orders to fill their hungry berths. What will happen when Contango demand ends and NOx III regulation is in force in 2016. It will surely be difficult year. But, we must keep on moving forward. There will be yet another niche. We can consider LNG demand from US Shale Gas as one of them.
The boom in 2003-2008 has brought enormous expansion and only Korean shipyards took the actual benefit. In 2008, there were 2000 registered shipyards in China, but less than 40 shipyards managed to contract a single ship in 2015. It seems lack of autogenic power. With the benefit of Abenomics, Japan¡¯s shipyards are enjoying the boom, but they are not in a position to take full advantage of it due to limited facility and shortage of technical manpower. Korea is the last breakwater to protect the global shipbuilding, offshore and shipping industries, from any kind of tsunami. The reason that the tough worldwide offshore operators are willing to reach agreement with Korean shipyards for technology standardization is because they know they can not exist if Korean shipyards face further difficulties.
Sung Hyuk Hwang.