Employees work at the Hyundai Mipo Dockyard Co. in Ulsan, South Korea, May 21, 2014. Bloomberg/Bloomberg via Getty Images
Dongkuk Steel Mill, South Korea’s third-largest steelmaker, is considering closing down one of its shipbuilding plate factories, the company announced on Tuesday. The sluggish global shipbuilding industry is the main reason for the decision, and even though South Korea is the world’s top shipbuilding exporter, the market is only a third the size of what it was a year ago.
The huge contraction in new shipbuilding orders stems from oversupply, a weak financing market, and lower freight rates. And the fall in crude oil prices over the last year worsened the situation, as oil refineries delayed or canceled orders for drill ships and offshore production facilities. China’s slowdown in growth has left its shipbuilding industry far over-capacity — its utilization rate fell from 75% in 2010 to 60% currently. So South Korea’s return to top market share, with 41% compared to Japan’s 28.9% and China’s 24%, rings a bit hollow because it is in a much smaller pool — 5.62 million compensated gross tonnage (CGT) of new orders in the first quarter, down from 16.19 million CGT in the same period last year.
Still, the speed and economies of scale that South Korean shipbuilders achieve is remarkable. Britain is having four new naval supply ships built at the Daewoo shipyard in South Korea, for roughly $910 million. Although that decision caused protectionist grumbling by British unions, no U.K. firms even made a final bid for the contract in 2012. The ships are set to be completed next year.
By contrast, Canada is nearly five years into a major navy modernization undertaken by reviving its domestic shipyards, but the program is hugely delayed. Government officials announced on Friday that fewer warships are now expected and most likely at higher prices than the original estimates. They said the $21.76 billion plan was now to build “up to 15 vessels” and the exact number would not be known for another few years. Construction is planned to start early next decade and end in 2040. A separate plan to build 6 to 8 Arctic patrol boats was meant to cost approximately $2.58 billion, but the bill is now running around $3.16 billion for only 5 or 6 ships.
Since 2010 Canada has put some $415 million towards upgrading the Seaspan shipyard in Vancouver and the Irving shipyard in Halifax to carry out this buildup. Two supply ships are set to be constructed in Vancouver for $2.16 billion — roughly five times more expensive than the British ones being built by Daewoo, despite the latter being nearly twice as big, noted CBC News.
It is doubtful that Canada’s shipbuilding industry will be able to export at costs competitive with the three dominant Asian players, but it should eventually be sufficient to meet domestic demand.That said, Canada’s decision to build ships domestically, however cost-inefficient per ship, is creating domestic jobs and stimulating the economy. And ultimately, that seems to be the government’s higher priority. So while the results so far are not good, perhaps the process makes the whole undertaking worthwhile.
