Korea’s three major shipyards, which once swept 70 percent of global orders, are to take wide-scale restructuring and downsizing steps, the impact of which may alter their global market standing amid a worldwide industry shakeup.
Daewoo Shipbuilding & Marine Engineering and Samsung Heavy Industries, the second and third largest of the three, are considering selling “floating docks,” which in boom times allowed them to increase production capacity beyond the physical limit of onshore facility, local reports said Sunday.
“If the yards seek facility downsizing, the first thing to dispose of is floating docks,” an industry observer said, citing STX Heavy Industries’ sale of the barge-type shipbuilding structure to a Turkish dockyard for 30 billion won ($25.2 million) in January.
The sale would be part of the shipyards’ restructuring efforts as debt mounts and new orders stop amid a prolonged slump in global shipbuilding. It may have been included in DSME’s 700 billion won asset sale plan, submitted to its creditor banks on Friday, the reports said.
DSME and Samsung have nine floating docks, while Hyundai Heavy Industries, the world’s largest shipyard, has none.
The trio has a total of 25 docks now. Hyundai said last week that it plans to close some docks.
The DSME’s latest restructuring package is on top of a 1.85 trillion won self-rescue scheme already ongoing since last year.
With DSME’s additional asset sale plan, the trio’s restructuring planning -- at the urging of their creditor banks -- has come to a close for now, with the total amount to be secured for debt repayment or be saved surpassing 6 trillion won.
Pain seems inevitable, as all three plan layoffs to cut costs and downsize facilities.
Hyundai Heavy, which plans 2 trillion won restructuring steps, aims to reduce costs by 500 billion won and is now moving to reduce headcount by nearly 2,000 and cut wages for those who remain.
DSME, which reduced executive positions by 30 percent and shed about 300 managerial jobs last year, plans to expand job cuts to lower ranks.
Samsung Heavy, which submitted a 1.5 trillion won self-help plan to Korea Development Bank, is said to be planning similar steps, including a redundancy program, wage freeze or cut and sale of noncore assets.
Experts say the trio's restructuring and downsizing is likely to accelerate and spread to smaller yards as new orders are unlikely to recover for the time being.
New shipbuilding orders received by local shipyards plunged 93.9 percent in value year-on-year in the first quarter of this year, according to industry data.
“The tide is unlikely to turn this year,” said a think tank affiliated with the state-run Export-Import Bank of Korea in a report. It said the industry is likely to see a pickup in 2017 and a full recovery in 2018.
Boston Consulting Group’s consultant Oh Seung-wook predicted the Korean trio’s market share will likely fall to 28 percent in the next five years from the current 32 percent.
By Lee Sun-young (milaya@heraldcorp.com)