20/06/2016 Feature
The Bigger They Are The Harder They Fall
Korean Woes Seem Horribly Familiar

Down comes a Goliath
It was not so long ago that South Korean shipbuilders seemed unstoppable. From their extensive shipyards a never ending stream of giant vessels, mainly tankers and cargo ships, seemed to fall into the water like leafs from a tree. Since 2007 South Korea has built a third of the world's ships, which is no mean feat for any nation, but given her arrival in the field is relatively recent compared to the likes of Europe and Japan, it is indeed remarkable. At times China and South Korea have been neck and neck in the race for supremacy, but of late, even though figures are still impressive (over 8% of South Korean export value comes from shipbuilding) like many giants before and now, South Korean shipbuilders are in troubled waters.

Largely the problem is finance.

The Big Three, Samsung, Daewoo and Hyndai (names we are all familiar with for a variety of different products, from phones to automobiles) have all posted record losses and these seem to be almost insurmountable. The reasons go back to the crash of 2008, which has affected all Asia shipbuilders, but as the maxim goes, the bigger they are, the harder they fall.

Geared for a world that was on an apparently unstoppable conveyor belt of churning metal to products, oil to plastics, coal to China, these behemoths rose to the occasion and joined the churn with aplomb.

When the crash happened, quickly it became apparent that shipbuilders would suffer the most. Order books which were lengthy suddenly turned into liabilities as customers cancelled, or could not pay. Credit was needed to plug the gap between ordering materials and paying shipyard wages and getting the money in from clients. But on top of this, it seems two other factors have not helped the Korean shipbuilders.

According to an article in ship-technology.com, ventures into oil rig construction have only added to their woes. This seems all to familiar to us here on the Clyde.

Back in the 1960s a similar pattern was seen when the once dominant Clyde yards toppled as their trading conditions altered for ever. Local shipowning companies contracted, secure Empire based markets disappeared, and passenger ship production (for which the Clyde always ranked best in) had declined following the arrival of jet travel. Clyde yards then struggled to compete with Japan, and their old shipyards needed upgrading.

One of the shipyards to propel itself into the uncertain world with confidence and brute force was Scott-Lithgow. This amalgam, of what was then two of the greatest names in shipbuilding, suddenly became a beacon of hope in an uncertain world. Their yard at Lithgow's in Port Glasgow and the Inchgreen Drydock were seen as the future. Huge facilities to build the ships the world needed - oil tankers.

It was these firms that pioneered building supersized ships in two sections and welding them together, and it seemed then that all would be well on the banks of the Clyde, - after all, oil was the new growth area with the North Sea's resources being discovered and coming on stream. And oil rig production seemed a saviour too.

But then came the Oil Crisis in the seventies, plunging the world into uncertainty.Strikes on the Clyde and mounting debts hit Scott Lithgow as it struggled to meet the deadlines for complicated oil platforms. Out on the Tail o' the Bank a giant thorn in the flesh arose as their last mammoth oil rig reared up, delayed, with cost over-runs and unhappy clients.

Within a few short years what was the mightiest of shipyards closed and its cranes pulled down, leaving the Clydeside area breathless and panting. A giant had died with a crash.

That this could happen to the Korean giants may not be the case, but it must be a worry in their heads if they look at the history of shipbuilding in places like the Clyde.

Like Scott Lithgow they banked on a future that crashed, then a new area of endeavour that has led to mounting losses. And whilst they do not have the same labour market problems, they do have something else to worry about, according to another article, this time in Yonhap, the Korean news agency: - fraud.

Employees at Daewoo seem especially to have been rather ingenious at sucking huge amounts of money from their firm, with losses of over $1.3 billion being laid at the door of accounting fraud.

Efforts are now being made to help steer the shipbuilders back to 'traditional' markets and cost cutting measures, including a reduction of workers and debts, is in place. But has it come too late?

The world is still a very uncertain place and the shipping world is sensitive to political and economic shocks directly. It takes time to build ships, it take seconds to turn them into massive liabilities - and in our world, a week is a very short time in shipbuilding.

All of us on Clydeside know these lessons all too well, and it seems the Koreans, like us, are learning the hard way too.


Photo showing demolition of Scott Lithgow crane from https://www.youtube.com/watch?v=RARpt5gM9FY