Shipyards Plan to Shut Down around 23 percent of Docks

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Ailing shipbuilders are planning to close around 23 percent of their docks for the next two years while shedding 32 percent of their workforce.  Additionally, the government and public entities will place orders for over 250 ships, worth 11 trillion won.  These are parts of a plan to enhance the competitiveness of the sector hit by the global recession and falling demand.

On Monday, Strategy and Finance Minister Yoo Il-ho said at an economy-related ministers’ meeting, “Though the global market for shipbuilders will slowly recover from 2018, it is expected to be sluggish overall until 2020, with orders failing to recover to the average level seen between 2011 and 2015”.

At the meeting, the government announced rearrangement plans for the shipbuilders and shippers.

Docks being used by the country’s top three shipbuilders ― Hyundai Heavy Industries, Samsung Heavy Industries, and Daewoo Shipbuilding and Marine Engineering (DSME) ― will be slashed to 24 from 31.  They will also decrease their workforce to 42,000 from 62,000.

The government decided to maintain the “Big 3” in the shipbuilding industry despite advice from McKinsey that DSME isn’t likely to survive on its own.

“DSME will be shifting its focus to sectors where it has competitive edge such as merchant ships. In the mid-to-long term, it will seek a new owner so that it can be managed by a large shareholder with expertise,” Yoo said.

DSME, which is under the control of creditors, will be shedding 41 percent of its workforce by 2018.  It will sell all its real estate except for two floating docks and shipyards.

Toh Kyung-Hwan, Deputy Minister for industrial creativity and innovation said, “The government basically plans to sell DSME.  However, normalization of the company should come first.  The core is to seek ways for the most efficient sale, bolstering the sector where it has a competitive edge while decreasing the part where it is weak,”.

On top of decreasing work in offshore plants, the government plans to strengthen its evaluation on the profitability of orders.  The big three companies have been facing criticism that they damaged themselves by winning orders through low bids due to excessive competition.

The order for 250 ships is to help the shipbuilders survive the falling global demand.

The government also plans to inject 3.7 trillion won by 2020 in regions where shipyards are located, to minimize the damage to the local economy.

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Source: The Korea Times

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