South Korea’s ‘Big 3’ Shipbuilders to Merge?

In a bid to handle the downturn in the global shipping industry, Yoon Jeung-Hyun, Former Strategy and Finance Minister for South Korea has suggested that the ‘Big 3’ South Korean shipbuilders merge their operations, according to IHS Fairplay.

Yoon Jeung-Hyun said: “The shipbuilding industry and others used to repeat the cycle of boom and bust. From now on, however, one may ask if this pattern will last.

“It is urgent for an oversupplied industry to be restructured. The number of South Korea's shipbuilding giants, such as Hyundai Heavy Industries (HHI), Samsung Heavy Industries (SHI), and Daewoo Shipbuilding & Marine Engineering (DSME), needs to be cut down to one or two.”

Sung Ki-Jong, Analyst at KDB Daewoo Securities, said: “Given depressed global growth and persistently low oil prices, shipbuilding orders will inevitably decline.

“But we see limited risks of additional losses from offshore plants and expect the merchant vessel segment to turn profitable thanks to lower exposure to low-priced orders.”

This suggestion follows recent PTI news that Samsung Heavy Industries had reported a net loss of around US$1 billion, which is reflective of the current slump in global demand.

There were also concerns that the ‘Big 3’ shipbuilders could lose out after their plans to restructure, which were announced in mid-2015.

Larger capacity ships are causing problems for the port sector, and one factor in coping with the overcapacity in the industry and the peaks and troughs at ports would be ordering less ships and bucking the trend of every growing orders. This however could put the major shipbuilders in even more uncertainty.

A unionm of major builders could be one way to weather the present storm.