페이지 정보작성자 최고관리자 댓글 0건 조회 140회 작성일 21-02-15 16:28
Recent trends in the shipbuilding and marine industry following COVID-19
As economic activities in major countries resume, economic rebound in the latter half of the fiscal year is nebulous due to the subsequent waves of COVID-19. As a result, the shipbuilding and marine industry is also lagging in recovery. In a recent statement, IMF and OECD predicted that this year's global economic growth rate will be △4.9% (June 2020) and △4.5% (September 2020, based on Single Hit). In addition, as production activities that utilize energy materials such as crude oil contract rapidly, the decline will continue on a global scale. Clarkson predicted that this year’s maritime volume will decrease 4.9% from the previous year. This is a 7.9 percentage point lower than the forecast made at the beginning of the year. In addition, when factoring in the sharp decrease of the volume of maritime goods that resulted from to the trade dispute between the US and China in 2019, business sentiment is projected to worsen even further.
Delayed recovery is also visible in oil prices, resulting from the disagreement between oil producing countries over declining demand and production cuts following COVID-19. Despite OPEC+'s consensus in April to cut output, cacophonies continue as decline of demand due to COVID-19 is not offset. The IMF predicts the average oil price in 2020 at $35 per barrel. It is projected that while the market will partially due to the recent consensus among oil-producing countries, a full recovery that will equal to the numbers prior to the pandemic seems unlikely, and prices expected circumvent $45 per barrel by 2023. Western Texas crude oil (WTI) fell from $54.5 per barrel at the end of January this year to $35.5 per barrel at the end of May and has recently reached $42.6 per barrel at the end of August.
Similar to last year, Clarkson forecasted aggregate global orders of this year to be 18.8 million CGT(September 2020), which is △10% lower than the 20.9 million CGT projected immediately after the pandemic began in March. This is 51.2% lower than the same period last year (September 2019). This is due to the obstruction of various factors that were expected to contribute to a gradual market recover such increased demand for eco-friendly ships, outcomes of the first phase of the US-China trade negotiations, and the enforcement of regulations on sulfur oxide emissions by the International Maritime Organization(IMO) in 2020.
Until August, the global order volume was at 8.12 million CGT, decreased 53.5% from the same period last year. This number only reaches 43% of Clarkson’s downward yearly forecast. If market conditions do not recover swiftly for the second half of the fiscal year, it is predicted that the impacts will parallel the marks that appeared in 2009, at the wake of the financial crisis(17.44 million CGT) and order cliffs that were observed in 2016(13.78 million CGT) order cliffs.
As cargo volume decreased, competition for survival among large shipping companies steadily increased, resulting to a 54.5% decrease in containership orders year-over-year. On the other hand, after the decrease of oil prices that led to a temporary rise in freight rates, tankers showed a relatively low decline rate of 21.7% YoY. Even the flourishing LNG carrier market also saw a decline; it received orders for only 9 ships(77 million CGT) as of the end of August this year, which means that the order volume decreased by 67.4%(30 vessels, 2.58 million CGT) compared to the YoY. Due to the drop in LNG prices as demand declined due to COVID-19, most LNG projects that were planned for this year were all postponed. However, as the likelihood of large-scale LNG projects in Russia and Mozambique seem to continue, market conditions for LNG carriers are expected to improve gradually, which signals positive developments.
On the other hand, Korea's order volume was 2.39 million CGT as of the end of August, which decreased 53.8% YoY. Through active domestic orders and support that comprised 60% of its total sales, China won 4.37 million CGT orders, which resulted to a relatively low decline in orders among major shipbuilding countries (△26.3%).
As of the end of August, construction volume decreased 20.7% YoY. This was a result of delays in the global shipbuilding industry's as well as process and equipment warehousing, which included the supply of acquired crew including service engineers. For Korea, construction was recorded as 5.98 million CGT, a relatively low decrease of 13.2% compared to major countries.The active quarantine measures taken by domestic shipyards distinguished its robust success compared to shipyards in China(△16.8%), Japan(△23.8%) and Europe(△50.3%).
Due to the global order backlog, CGT was recorded as 69.93 million in August, which is the lowest rate since 2004. Among them, Korea recorded 19.17 million CGT, decreasing 8.3% from the same period last year. If the current lag in orders persist, liquidity risks and job insecurity are projected within two years.
Additionally, between June 2019 and August 2020, The Clarkson Newbuilding Price Index fell from 130.9 points. In addition, The Clarkson Newbuilding Price Index fell from 130.9 points in June 2019 to 127.0 points in August 2020. This comprises up to 66%, when the newbuilding price index recorded the highest at 191.5 points in August 2008. While shipbuilding exports this year were expected to increase by 6.8% YoY to $21.5 billion, the cumulative amount until August was $12.8 billion, down 10.9% YoY and staying at 91.5% compared to the initial projections.
Domestically, the workforce is recorded 102,173 as of the end of July, which was 2.8% (2,945) decreased from the end of the previous year. Due to the recent expansion job disruption and supply chain confusion, major countries are actively implementing wage subsidies to prevent large-scale layoffs and expand unemployment support systems.
Crisis and opportunity in coexistence
In order to ameliorate market stagnation and sharp decline in order values, the Korean shipbuilding industry self regulates by facilitating facility reductions or shutdowns, implement rotational leave of existing employees, and suspend of business. As a result, the outflow of skilled manpower increased, and the influx of new manpower decreased due to worsening conditions for employment at the shipyard and avoidance of the shipbuilding industry.
Such condition is leading to a concomitant downturn in industrial ecosystems, particularly within small and medium-sized shipbuilding and equipment industries. After winning an order of 2.24 million CGT in 2016, the domestic shipbuilding industry faced an order cliff. While it showed signs of recovery after increasing cargo volume and the strengthening of global environmental regulations, the pandemic obstructed its further growth. In addition, internal shifts within the global shipbuilding industry and the global value chain(GVC) require securing digital-based innovation capabilities as a key factor for corporate survival. As a result, the Korean shipbuilding industry is at a pressing moment to consider innovation and survival simultaneously.
On the other hand, as the pandemic becomes a long-term factor, it accompanies pressure on client funds, which may result to delay in ship takeovers. Cases of non-chartered charters are increasing compared to the beginning of the year as the market stagnates. Clarkson predicted approximately 20% of vessels that were scheduled to be built in 2020 will now be delayed. In response, shipyards will lose profit as ship costs increase, and liquidity risks are also likely to expand due to sluggish orders and disruptions in normal delivery.
Price of raw materials such as iron ore increased, pressuring the heavy plate industry due to delays in investment, and there might be a possible decline in ship prices due to a weakened Won. These are all placing heavy burden on the shipbuilding industry. Due to a supply-demand imbalance, Iron ore prices spiked from the 60–70-dollar level per ton in 2018 to a 120-dollar level in August. In addition, due to the sharp rise in cost and overall market condition of automobiles and shipbuilding, the domestic iron market is stagnated. Beyond poor performance, the shipbuilding industry now faces issues of survival due to critical order cliff, and it is time to wisely overcome this crisis with visions of co-existence.
For the upcoming year, investment sentiment shrinking amid worsening external environment and delays in ship finance will result to extremely limited newbuilding orders. Particularly, orders from general-purpose commercial vessels are unlikely to resume within the latter quarters due to the economic downturn. Without the proper recovery of the general-purpose merchant vessel market that comprises 60% of all orders, the rest of the industry will not completely ameliorate either. However, orders for LNG carriers are expected to resume in parallel with LNG projects in countries like Mozambique and Russia. While this is good news for the Korean producers, it is not solidified as Chinese producers closely follow as competition.
This past May, Hudong China Shipbuilding signed a reservation for construction slots for 16 LNG carriers (including options) with Qatar Petroleum (QP). This transaction broke the premise that domestic (Korean) shipbuilders would monopolize QP’s slots and heightened the presence of Chinese competitors. On the other hand, as three primary shipbuilders finalized large-scale deals for slots on June 1st, there was a signal of increased and meaningful workflow. Although the specifics such as ordering point, spinal cord and ship price are undecided and therefore we need to be cautious to make concluding remarks, the positive sentiment remains. In addition, this deal reinforces that unequivocally Korea has proven its competitiveness in the high-end market, especially centering on LNG carriers.
While errors of various degree happened during the boom, a period that required proper processing of order volume, domestic shipyards generally had focused their production capacity on meeting delivery times. However, as various factors such as the price competitiveness of China, strong domestic market and low-cost labor influx from Singapore, Korea must now focus on maximizing quality and production efficiency. Accordingly, the Korean suppliers must formulate win-win growth strategies by partnering with competitive suppliers as well as the government, working towards improving quality and productivity.
Specifically, there must be continuous efforts to support the equipment industry, centering around large-scale shipyards. In addition, it is imperative to secure working relationships with equipment and materials companies. The collaborative efforts should focus on demonstration projects, with the expansion of R&D support for new products and identify current purchase conditions to enhance mutual competitiveness. Through such developments in cooperation, a track record will be established, and demonstration businesses should be centralized.
With the advent of smartified and eco-friendly ship products, big data platforms and workforce that comprise this sector are increasingly vital. From this perspective, domestic shipbuilding and parts industries must simultaneously pursue a super-gap strategy through gas carriers and/or the High-end Market and expand traditional Volume Market presence.
Suggested policies to maintain the ecosystem and strengthen competitiveness
In order to properly address the issues that will arise throughout the subsequent waves and the eventual post-COVID market, the shipbuilding industry must expand domestic demand through securing working capital and public ordering in anticipation of reduced sales and liquidity risks caused by order cliffs.
Simultaneously, the industry is tasked with maintaining industrial ecosystems such as mid-sized shipbuilding and equipment industries. This may be trickle-down effects that will arise in the partnership between domestic shipbuilding stocks and employment support policies to maintain appropriate manpower during the recovery period.
So far, government efforts focused on solving liquidity-related problems that resulted from the sharp decline in orders in the shipbuilding industry. It also supported regulating production activities of the shipbuilding industry through logistics customs clearance for major equipment/blocks and simplified entry and exit procedures for overseas engineers. Alongside, it introduced a support program for operating funds for major industry partners while additionally designating industries that required special stabilization funds. Currently in development is a policy to maintain the level of employment through employment maintenance subsidies(company), along with a plan to support the small and medium-sized shipbuilding/equipment industry through pre-ordering government ships.
However, if the market conditions stagnate for the second half of the fiscal year, order cliffs and issues that surround them will persist. This situation seems rather likely; as of the end of August, the global order volume was 8.12 million CGT, which indicates that orders are highly likely to fall below orders during other crises such as 2009(17.44 million CGT) and 2016(13.78 million CGT).
In addition, the delay/rejection of ship takeover are palpable issues as financial pressure by clients increase. Due to the nature of the order-taking industry that depends on sales cashflow, the persistence of issues such as decline of order receipts, reduction of loans to the shipbuilding industry, and contraction of ship financing will accelerate.
As a result, it is particularly important to expand financial support for ship owners who are having difficulty in financing. Moreover, currently, the stipulation ranges around 60-70% of the overall 80% of the ship price stipulated in the OECD Ship Export Credit M&A. As a result, it is necessary for domestic private financiers to actively participatory agents in the market. In the case of mid-sized shipbuilders, as they share a relatively short construction period, sales will mostly likely be going to decline. For medium-sized shipyards with ample experience and global competitiveness, new policies that secure diverse product portfolios should be established.
Due to the restriction of in-person contact(service engineer, ship owner supervisor, etc.) that followed the pandemic, production disruptions such as mutual site verification, ship quality inspection and commissioning process are occurring. In particular, process management, mainly for small and medium-sized shipyards are having issues as they have relatively insufficient technical infrastructure and management capabilities. Emphasis on building smart processing platforms, such as developing mobile platforms for ship building processes(support the welding process management systems to improve welding quality), and international inspection and certification processes must be made.
On the government end, it must support securing work for the small and medium-sized shipbuilding and equipment industry. This can be attained through ordering eco-friendly ships and purchasing equipment after the early closure of old government ships. Moreover, promoting orders from domestic shipping companies and expanding the application of eco-friendly smart technology in accordance with the enforcement of the 「Environmentally Friendly Ship Development and Distribution Promotion Act」(Jan, 2020) are imperative. In particular, in order to capitalize on the to increase global gas demand, a systematic and continuous cooperation structures for large domestic shippers such as Korea Gas Corporation is necessary to expand domestic demand in the shipbuilding industry.
Aside from large shipyards, stagnant general-purpose merchant ship markets will significantly impact mid-sized shipbuilding and equipment companies. By the end of August, domestic midsize shipbuilding orders decreased sharply (26 vessels→16 vessels) compared to the same period last year. As a result, strengthening employment security networks along consistent policies that retain employees is imperative, the industry is suffering from sluggish orders and the expansion of liquidity risks. Minimizing turnover rate to secure manpower is important; by improving working conditions to a 52-hour weekly system and foreign workforce systems, the recovery of the market will be ameliorated.
The shipping products paradigm is rapidly shifting due to focuses on eco-friendly smartization that respond to strengthened international environmental safety regulations. As a “First Mover” in decarbonization and digitization so far, there is a required sense of responsibility to lead further advancements. For post-Covid era, aggressive R&D promotion in the digital realm must happen through converging IT. This includes artificial intelligence technology that will incorporate big data through sensors and IoT into industrial demand, innovation of production methods through smart manufacturing, and eco-friendly ship development. In support of these ventures, leading strategies and policies should exist to maintain the gap.
In addition, since 2019, a <Shipbuilding & Marine Industry Development Council> was organized by the Korea Shipbuilding & Offshore Plant Association. The council was formed with the aim to rebuild the domestic shipbuilding and marine industry ecosystems and establish future development plans. Now is a moment to begin implementing key projects that were derived during the council sessions through detailed implementation.
■ Inquiries: Industrial Research Institute(www.kiet.re.kr)