One of the key differences is the fact that Korea itself doesn't have a mature ship-owning sector, Japan has. Where the Japanese Yards can do business with Japanese Owners (often via the Trading Houses), the Koreans are almost totally reliant on selling their designs for export to the shipping capital centres of London, Piraeus and New York.
What does this mean at a practical level? The Korean Yards are early adopters and have developed innovative designs to meet the emerging sectors - LNG, mega-container carriers, deep water oil and gas exploration. At Daewoo (DMSE) we saw the 14,000 TEU container ships under construction for CMA-CGM and MSC. These vessels are innovative for their separation of the accommodation and bridge forward for improved visibility, and engineroom aft for a short tailshaft.
'MSC Daniella' built by DSME Ulsan
Japanese Yards build excellent quality ships, but the initial Outline Specification submitted is often steeped in the last century. Japanese Yard today are offering, and Japanese owners are contracting, new ships where the crew share a common toilet and shower. Hulls are protected with passive zinc anodes, even though imprest cathodic systems have been in use for half a century. My company bareboat chartered a 1996 Japanese-built Panamax bulk carrier, only to find that it had no UMS automation. UMS (Unmanned Machinery Space) automation has been standard since the 1960's. The financial cost of employing additional engineers to keep watch and maintain the machinery was crippling.
Korean Builder's early adoption stance has had a cost though. Shipbuilding is a cyclical business, and Yards must be prepared (and financially resourced) to continue production in the loss-making years as well as the boom years. In the mid-2000's, as shipping rode the spectacular China-driven upturn, the Koreans turned their back on low-margin bulk carriers. The large Yards like Hyundai, STX and Daewoo reasoned that high margin building was best use of capital and resources, and actively targeted LNG, container and VLCC's. The Japanese were less aggressive, and maintained their development of bulk carriers from Handy through to Capesize.
Chinese Yards played catchup during the 2000's, though with a few exceptions these vessels will probably not see 15 years in service such is the overall poor quality of coatings and steelwork.
With the economic crash of 2008 still working its way through the shipbuilding industry, three clear trends have emerged.
The Chinese Yards have experienced significant cancellations of speculative newbuilding orders. However, the Chinese shipbuilding industry is regarded as a strategic State asset by the Central Committee, and China will support those Yards deemed essential for economic growth. Chinese Yards suffered when bulk carrier asset values tumbled in early-2009, but with many 'greenfield' Yards still undeveloped have effectively lost less that had they been in full production.
Japanese Yards, through a more conservative portfolio mix of vessels have maintained forward orderbooks of about four years production. Korean Yards, by targeting high-margin vessel funded through IPO's and aggressive capital raising structures, experienced the 'perfect storm' when the collapse of asset bubbles in LNG and container shipping decimated their existing and forward order books. Many of the Yards visited has forward order books of less than two years, half that of the Japanese Yards. In an Analyst's Note just published, UBS estimate that Korean Yards carry 75% exposure to CMA-CGM's potential default on its current containership order book.
So whose won and lost in the global shipbuilding race? China will undoubtedly become No.1 in the world as they harness low-cost labour and adopt modern technology. Quality as a philosophy is their next step change, and is nacent at Yards like Nantong COSCO KHI and Shanghai Waigaoqao. Japan will maintain a No.3 position through looking at the 'long game' with their traditional Customers, and maintaining a diverse product portfolio. Korea will continue to battle with China for top spot, and have already embraced Demming quality and production philosophies. Some consolidation over the next two to three years may feature as the Korean Yards rebuilt their orderbooks and profitabilty. The financial fallout from the collapse of the LNG and container asset bubbles should make the the Korean Yards and their Export Bank reconsider their aggressive financiang packages. It has been Korea, and not the Owners, who have suffered through the string of newbuilding defaults plaguing the Korean Yards.
The Antipodean Mariner
5th October 2009