Share this story
Close X
Switch to Desktop Site

S. Korea surges forth as shipbuilding power

As the worldwide shipbuilding industry increasingly feels the recession pinch , a wave of angry criticism is being directed at South Korea's upstart industry, whose rock-bottom prices are stealing orders from long-established yards.

Korea's emergence as a shipbuilding power has been dramatic. Seventieth in the world in 1974, it was second only to Japan just seven years later, with an installed capacity of 4 million gross tonnage a year.

About these ads

In 1981, according to Lloyd's shipping register, South Korea captured 8.1 percent of the world's total new orders and chalked up 5.8 percent of total ship completions.

The recession has hurt, though. Tonnage of ships on order shrank about 20 percent last year. New ship prices are about 30 percent lower than two years ago. Profit margins have been slashed and the industry is heavily dependent on foreign bank loans.

But the Koreans are confident they can ride out the recession. A foreign consultant who recently visited Korea's major shipyards described them as ''jammed to the gills'' and said the Hyundai Heavy Industries Company, Korea's premier shipbuilders, had had to extend slipway tracks to accommodate the 45 ships now under construction.

Daewoo Shipbuilding & Heavy Machinery Ltd., Hyundai's nearest rival, is also causing envy overseas. Its dry dock, the world's largest, is full. Last year Daewoo won South Korea's biggest-ever shipbuilding contract with a $780 million order from US lines to build 14 large-size container ships. The company's chairman, Kim Woo-Choong, stresses Korea's flexibility. ''Japan is better at mass production . . . but every ship needs a new design and we do this better,'' he says.

European competitors claim that Korea's trading practices are unfair, its prices - up to 50 percent lower - barely covering the cost of materials in Europe. They accuse the Seoul government of bolstering the industry with excessive subsidies and of aggravating overcapacity in a dwindling world market.

The Koreans, however, insist that apart from an initial five-year tax holiday , they get no direct government subsidies - that their prices are only about 15 percent lower than Japan's and 20 to 35 percent lower than Europe's. They say it is absurd for the developed world to be so concerned about Korea's industry, when Japan takes more than half the world's orders and has the capacity to take all of them. The export-import bank of Korea helps with finance packages, but according to a foreign shipbuilding consultant, ''money is short and the Koreans are seldom as competitive as the Japanese in credit terms.''

So how do the Koreans do it? Their shipbuilding equipment is modern and efficient, the cost of initial yard construction relatively low, and locally produced steel is cheap. Giant trading companies like Hyundai and Daewoo can offset shipbuilding losses with profits from elsewhere if necessary.

About these ads

But perhaps the most important factor is the human one. Most Korean shipyard workers do a 60-hour week, often with overtime on top; take home wages up to 65 percent lower than their Japanese counterparts; and never go on strike. Top executives rarely draw a salary of more than about $30,000 a year.

Follow Stories Like This
Get the Monitor stories you care about delivered to your inbox.