Chinese Shipbuilders Likely to Win 1.35-Tril.-won Order from Hapag-Lloyd over Korean Companies
Korean shipbuilders are reportedly outrun by Chinese rivals in a race to win a 1.35-trillion-won order for six 23,000-TEU super-large container carriers from German shipping company Hapag-Lloyd.
Chinese shipbuilders beat technologically superior Korean competitors with advanced technology on the back of the Chinese government’s policy financing.
China’s Hudong-Zhonghua and Jiangnan are likely to win the order, according to TradeWinds, the world’s biggest shipping news service. “Hapag-Lloyd intends to place an order with a Chinese shipyard to receive shipping financing from the Chinese government,” an industry insider said.
Since 2007, Korea has fallen to second place after China in terms of shipbuilding order backlogs, but it has maintained an edge over China in terms of shipbuilding technology. The market for 20,000 TEU or larger container ships, which require advanced ship design and construction technology, has been dominated by three Korean shipbuilders — Hyundai Heavy Industries, Daewoo Shipbuilding and Marine Engineering and Samsung Heavy Industries.
However, in recent years, Chinese shipbuilders threatened Korean dockyards in the high-value-added ship market. In 2018, CMA-CGM in France awarded a 23,000-TEU container ship order to Hudong-Zhonghua of China, and the Hong Kong Tiger Group gave an order to build 10 14,000-TEU container ships to Yangtze Shipbuilding of China. At the end of last year, a U.S. energy company ordered 17 very large ethanol carriers (VLECs) to a shipyard under the CSSC Group in China.
The Chinese government’s financial support helped Chinese shipbuilders overcome technical barriers. CSSC Leasing, a ship leasing division under the Chinese state-owned shipbuilding group CSSC, supports overseas shipping companies with contract payments when they place orders through CSSC Leasing. In addition, China’s financial industry is also implementing “sale and leaseback (S&LB)” projects where a Chinese financial company takes over a ship from a shipping company and leases it to the shipping company in order to provide liquidity support to it.
The Korean shipbuilding industry is appealing to the Korean government for financial support to respond to the Chinese government’s financial support to shipbuilders. Shipbuilding contracts are mostly heavy tail contracts where a shipbuilder receives more than half of a ship’s price from its client at the point of its actual delivery. Accordingly, a shipbuilder can build a ship only when it secures operation funds. If a shipbuilder has not secured operational funds in advance, it can hardly land a shipbuilding project.
Source: Business Korea