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Special Report Korea’s Shipbuilding Industry’s Mid-to Long-term Outlook and Policy Ta…

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작성자 최고관리자 댓글 0건 조회 108회 작성일 20-08-14 15:02

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5. The Korean Shipbuilding Industry's Middle-to Long-term Outlook

(1) The Korean Shipbuilding Industry's Market Share Outlook
The shipbuilding industry is cyclical; as a result, periodic demand trends are continually changing. From 2000 to 2018, Korea was the market leader by order volume, on a Compensated Gross Tonnage(CGT) basis, with a 30.9% share of the global shipbuilding and marine market, followed by China at 30.3%, and Japan at 21.3%. However, market share on a country basis fluctuates significantly over the examined period, as such, the period is divided into four periods to identify major contributing factors and strategies of major companies, as depicted in <Figure 1>.

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Period 2000 to 2005. During China's initial market entry, Korea's average market share was 33.3%, Japan's 30.6%, and China's 13.9%. This was the first time Korea overtook Japan to become the global market leader by shipbuilding order volume. However, China's entry began to gain traction as their presence increased from a 7.6% market share in 2000 to a 21.1% share by 2005. On the one hand, countries with overlapping construction with China, such as Japan, experienced market share dilution from 38.3% in 2002 to 24.9% in 2005 as China's construction volume grew.
Period 2006 to 2010. Japan's market share dived with China absorbing most losses - Korea's market share was 29.8%, Japan's 15.1%, and China's 41.2%. Despite the shipbuilding industry's apex in 2007, the market took a turn following the Global Financial Crisis(GFC) in 2008 and the Chinese government-led domestic demand expansion policies. As such, market share cannot be identified accurately.
Period 2011 to 2016. Following the oil price drop in 2014, Korea and China's marine industry were hit hard as the merchant ship market and the marine market entered into a recession. Japan's market share rose during this period from increased domestic demand, equipment investments and deferred shipbuilding industry expansions. The average market share for Korea was 28.9%, China 35.7%, and Japan 19.1%. Japan's market share increased following targeted domestic orders. Korea's marine industry experienced its lowest market share from 2015 to 2016 following large-scale inefficiencies and major shipbuilder-led restructuring.
Period 2017 to 2018. Order volumes slowly recuperated as the global economy began to recover. Especially during this period, Korea's shipbuilding industry was able to overcome restructuring uncertainties; as such, Korea's market share gradually returned to previous levels. Korea's average market share was 32.5%, China's 35.9%, and Japan's 16.2%. In 2018, Korea's market share overtook China to 38.5% off the back of growing deliveries of LNG carriers and Very Large Crude Carriers (VLCC). If the trend were to continue and strengthen through to 2020, Korea's market share is expected to be between 27-30%. China is expected to lead the market on an output volume basis. However, Korea will likely focus on the high value-added market with an emphasis on environmentally friendly Smart Ships as per the International Maritime Organisation's(IMO) strengthened environmental protection regulations.
Construction trends indicate competitiveness in the ship building industry. A ship's construction begins after an order is made; thus, it may seem irrelevant to competitiveness. However, given the rapid implementation of environmental protection regulations, orders will outpace construction. During this period, a company's backlog may be an ideal indicator of competitiveness.

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During the years of market contraction from 2010 to 2015, order volume and construction volume(2013-2018) comparisons show that Korea and Japan had excess construction volume. However, during the same period, China's order volume was 8% higher than its construction volume, which may indicate that either orders were not continued through to construction or were cancelled.
On the one hand, the average size of ships ordered in Korea was larger than that of its competitors. Following the GFC, Korea's small- and medium-sized companies, which usually constructed Handy Size vessels, restructured to cater to larger vessels, helping improve Korea's competitiveness. The growth of the average ship ordered in Korea was larger than the global average growth rate. In 2018, LNG carriers were ordered on a large scale with an average order size of 45million CGT. Upon comparing with Japan's average order size of 18.7million CGT and China's average order size of 23.7million CGT, Korea has a significant advantage in technologically advanced and large vessels.
Upon analysing the long-term trends of Korea's three major shipbuilders by ship type, the proportion of bulk carrier construction was considerably large until the 1990s as Korea was catching-up to Japan. After over-taking Japan, trends show that construction turned towards oil tankers, container ships, gas carriers, and marine plants. Shipping companies place orders for high value-added, large ships with select shipbuilders not for their cost competitiveness, but their quality.
Furthermore, on a per ship basis, except for bulk carriers, Korea's major shipbuilders increased its market share of all other ship types.
Korea's shipbuilding industry's competitiveness trend was also confirmed by a competitiveness analysis research conducted by the Industrial Bank of Korea in 2018. Korea was technology, production, and other(brand and after service) competitive; however, fell behind China and Japan in price competitiveness. As a result, Korea's competitiveness was limited to container ships, gas carriers, marine plants, and oil tankers.

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Order market share by ship type and shape from 2009-2013 and 2014-2018 best depicts changes in competitiveness. During these periods, China and Japan were able to maintain competitiveness through domestic order volumes, an indicator of their relative dominance. The decline of Korea's small- and medium-sized shipbuilders also contributed to the changes in market share. In 2014, small- and medium-sized shipbuilder's construction volume accounted for 14% of Korea's market share; however, fell to 7% in 2019. By 2019, the remaining operational small- and medium-sized shipbuilders were Daehan Shipbuilding, STX Offshore and Shipbuilding, and Daesun Shipbuilding. In turn, Korea's future market share, assuming the industry maintains its market share, is expected to remain stable.

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(2) Market Analysis of Major Ship Class and Models
In order to present a detailed market forecast of Korea's shipbuilding industry, the market share by ship model will be analysed. Forecasts by model are needed to account for the growing size of ships, in doing so, long-term ship changes to vessel shapes will help estimate the markets construction volume. For example, the size of oil tankers began to grow before the Oil Shocks of the 1970s, and the trend continued for Very Large Crude Carriers(VLCC), Suezmax, and Handysize ships even after the GFC. However, following the GFC, the size of Aframax and Panamax ships, on a DWT basis, began to decrease. After 2010, the number of VLCC's continued to rise, whereas, for Aframax and Panamax ships, numbers began to fall.
On a Gross Tonnage/Compensated Gross Tonnage basis, upon comparing ship types by average order volume, ships have gradually grown in size following the GFC. And after 2016, the number of Suezmax and VLCCs have increased.

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However, the trend for container ships is different. As the number of larger vessels continue to grow, the number of intermediate-sized ships in major ports have been maintained. This is especially the case as the size of container ships continue to grow; as such, the number of container ships over 15,000 Twenty-foot Equivalent Unit(TEU) is rising. Following the expansion of the Panama Canal in 2016, the number of 3,000-8,000 TEU-class ships has decreased, while the number of 1,000-3,000 TEU-class ships have been consistent. Evidence shows that the container ship market has begun to polarise.
The annual order volume from 2016-2018 shows that 3,000-8,000 TEU-class container ships were seldom ordered. Furthermore, the number of 8,000-12,000 TEU-class ships fell. It is expected that the Europe-Asia route will be dominated by over 15,000 TEU-class ships, the Asia-Americas route will be dominated by 10,000-12,000 and 5,000 TEU-class ships, and the Feeder market will be dominated by 1,000-3,000 TEU-class ships.
Bulk carriers are also growing in size. After the GFC, ultra-large bulk carriers like the Chinamax were delivered in mass after China increased investments towards large bulk carriers. As a result, the number of Capesize carriers increased. However, as the outlook for bulk carriers increases in uncertainty, and the number of bulk carrier deliveries falls, the demand for larger bulk carriers is diminishing.
Upon examining by ship type, the number of Panamax-class ship began to fall around 2010 and were replaced by Capesize and Handymax-class ships. Upon examining order volumes, demand for Capesize-class ships increased rapidly during the 2000s. However, after the GFC, demand for Capesize-class ships was replaced by Panamax and Handymax-class ships. After the sharp fall in demand in 2016, orders were limited to market-leading shipping companies, reviving the trend for larger sized ships.

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(3) Korea's shipbuilding industry's construction outlook
Based on the assumption that Korea's market share by order volume over the past five years will be maintained into the future, Korea's shipbuilding industry's construction volume can be forecasted. However, due to strengthen environmental protection regulations, there is a possibility that Korea's demand share will increase. Also, upon considering the weakening domestic demand for ships in China and Japan from a prolonged market downturn, Korea's market share has further potential to increase. The average of Korea's market share over the five years can be assumed to be a conservative case scenario. The case assumes that the construction volume trend is the average of order volumes over the past ten years. Based on the assumptions made for Korea's market share of major ships classes and models, Korea's shipbuilding industry's construction volume is forecasted.
The research expects an annual average construction volume of 9.7million CGT. As the construction by small- to medium-sized shipyards fall, it can be assumed that construction will be predominantly carried out by large shipyards. Upon comparing figures from over the past five years, construction volume has fallen 600,000 CGT from 10.3 million CGT. It is presumed that construction volumes for bulk carriers, container ships, and other ships will fall. Weakened demand for bulk carriers is attributable to market contraction, intensified competition between Korea, China, and Japan, and the collapse of small- to medium-sized shipyards. Other factors include the container ship market's decline and the offshore plant market's contraction. However, it is expected that the markets will recover beginning 2025 with the exception for the bulk carrier and LNG carrier markets where construction volume declines are expected.

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Changes to construction volumes for container ships and LNG carriers are relatively significant. In order to maintain the industry's competitiveness, the competitiveness of oil tankers, container ships, and LNG carriers must be maintained. There is also the need to rediscover the lost competitiveness of bulk carriers and establish a stable foundation for construction.

※ Will continue next month.
 

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