South Korea in last-ditch effort to rescue sinking shipbuilders

The government will order more than 250 vessels and offer about 6.5 trillion won in financing.

Hyundai Heavy, Daewoo Shipbuilding and Samsung Heavy job cuts
Shipbuilders work on the Harmony of the Seas (Oasis 3) class ship at the STX Les Chantiers de l'Atlantique shipyard site in Saint-Nazaire, France, February 18, 2016. REUTERS

South Korea plans to pump in $13.37 billion (11 trillion won) to steady the country's shipbuilding industry which has suffered heavy losses and job cuts amid an 87 percent fall in orders in the past nine months of this year alone.

According to the trade ministry, the government will order more than 250 vessels and offer about 6.5 trillion won in financing to support the shipbuilders who contributed almost 8 percent to the South Korea's exports and around 7 percent of the country's manufacturing jobs last year.

South Korea is home to the world's three largest shipbuilders --Hyundai Heavy Industries, Daewoo Shipbuilding & Marine Engineering and Samsung Heavy Industries. However, the mammoth shipping industry in the Asian country has been in doldrums ever since the 2008 economic crisis that triggered a slide in orders. The problem was compounded by the influx o lower cost Chinese ships and now the current oil market downturn has reduced global trading volumes and hence the demand for ships.

The Big Three in global ship building have sold non-core assets and eliminated thousands of jobs this year and are looking at further cost cuts. The Korea Labor Institute has estimated that up to 40,000 jobs could be eliminated in the country's shipbuilding industry, which has already seen 20,000 jobs go this year.

In the last eighteen months, Samsung, Hyundai and Daewoo have lost a combined 6.6 trillion won (S$8.1 billion), the report said. The report also says companies across the globe linked to the oil and natural gas sector have shed as many as 350,000 jobs since 2014 when crude prices started to drop.

According to a report by consulting firm McKinsey & Co, published earlier this month, Daewoo would not survive beyond 2020 if the market turmoil continues. Hyundai Heavy, the world's largest shipbuilder, has said it's spinning off its non-shipbuilding businesses.

As per the government plan to support the shipbuilders, the Big Three will eliminate 32 percent of their direct staff by 2018 and reduce operations by 23 percent.

Of the 250 the vessels the government will order, most will be boats for small shipping companies and the fishing industry, while the government will also buy coast-guard vessels and navy vessels. The government will form a new company with a capital of 1 trillion won to buy the vessels.

"Aggressive restructuring will be carried out to ensure financial soundness of the companies in case the dire situation prolongs and they would be ready should things start to recover," Finance Minister Yoo Il-ho said on Monday. "Companies will be monitored regularly on their restructuring progress and prevented from winning offshore orders at low prices."

Vice Trade Minister Jeong Marn-ki stressed that the plan right now is to support the shipbuilders to the hilt but they will be asked to adopt painful restructuring and aggressive cost cutting.