FALLING demand for new ships and competition from Japan and China have pushed South Korea from its position as the world’s leading shipbuilder, UK-based maritime analysts Clarksons said in a report released on Wednesday.
Clarksons, which tracks market trends in the shipbuilding and shipping industries, estimated that the South Korean shipbuilding industry—which includes companies such as Hyundai Heavy Industries, Daewoo Shipbuilding and Marine Engineering, Hanjin Heavy Industries, which operates a large shipyard in Subic Bay, and Samsung Heavy Industries—had an order backlog of 473 ships or 19.89 million CGT (compensated gross tonnage, an indicator of the labor and resource inputs necessary to build a ship) at the end of 2016, while Japan had a backlog of 20.06 million CGT, or 835 ships.
The order backlog represents outstanding orders for new ships that have not yet been completed at a given time.
South Korea had surpassed Japan to become the world’s leading shipbuilder in 1999.
Both South Korea and Japan are likely to soon be surpassed by China, which led the three countries in new orders last year with 3.51 million CGT to South Korea’s 1.57 million CGT and Japan’s 1.12 million CGT.
Global and domestic slump
Clarksons and other analysts said that the primary reason for South Korea falling behind Japan is the severe global slump in new ship orders. South Korea is more vulnerable than Japan in this respect, because about 90 percent of South Korea’s shipbuilding output is destined for global customers, while Japanese shipbuilders’ orders are approximately evenly divided between foreign and domestic customers.
The research firm pointed out that Japanese shipyards received orders for a total of 48 new vessels between January and November 2015, of which at least 40 were destined for large Japanese shipping companies such as Mitsui OSK Lines (MOL).
Hong Seong-in, an analyst at the Korea Institute for Industrial Economics and Trade (KIET), explained the Japanese advantage. “When the global shipbuilding industry faces a shortage of orders, domestic orders can serve as something of a safety valve,” he said.
Clarksons also noted, however, that the statistics were likely somewhat skewed against South Korea, due to the large number of ships South Korean shipyards completed and delivered last year. 11.41 CGT of new ships left South Korean shipyards in 2016, compared with 6.7 CGT completed in Japan.
Hong suggested that the collapse of Hanjin Shipping could make the slump in orders for South Korean shipyards even worse over the next couple of years.
“Even if there is a recovery in the shipping industry, global shippers will probably be able to meet their needs for ships by purchasing ships formerly owned by Hanjin Shipping, which means there could be a major decrease in the number of new orders from overseas shippers,” Hong said.
Nevertheless, Hong said that Japan’s supremacy may be temporary, as it was brought about simply by South Korea’s being more vulnerable to global conditions.
“The Japanese shipbuilding industry didn’t regain the lead over South Korea because it had become more competitive in scale or technological ability,” Hong said. “The chances are very low that this reversal will be a continuing trend in the future.”