1. Korean Shipyard Industry Update
2nd Annual Korea Ship Finance Forum
Korean Shipyard Industry Update
Korea Eximbank

2. Contents I. World Contracts Trend
II. Korean Shipbuilding Industry Trend
III. What Happens in Shipyards in the Financial Crisis
IV. Finance for the Shipyards
V. Perspectives

3. I. World Contracts Trend
World contracts have been decreasing this year
Source : Clarkson
Key Issues : - Decreasing investment in ship finance
- Concerns of global economic recession
- The financial crisis

4. I. World Contracts Trend
Newbuilding price is still high, But……..
Source : Clarkson
Newly invested and established ship builders will try to cut down the order price
Major ship builders will resist against the lower order price requests
Major shipbuilders position will limit the price cut on new orders

5. II. Korean Shipbuilding Industry Trend
Contracts have been following the downward world market trend
Source : Clarkson
Market share : 36~42%
Since 2003, Delivery < New building contracts
Increase in the order book quantity

6. II. Korean Shipbuilding Industry Trend
Delivery quantity is continuously increasing by new…..
Source : Clarkson
Increasing around 15% annually (since 2003)
Mainly contributed by New construction methods
- Mega block, building on dry land, and floating docks

7. II. Korean Shipbuilding Industry Trend
The orderbook started to decrease, but it is still sufficient
Source : Clarkson
Note : As at the start of period specified
Korean ship builders have more than 4years worth on their orderbooks

8. III. What Happens in Shipyards in the Financial Crisis
Possibilities of order cancellations due to the shrinking
ship finance market
“The maritime sector needs about $300 billion over the next three to four years to fund construction of vessels that are already on order, according to Nordea Bank Finland Plc. At least a quarter of container ships, dry-bulk vessels and oil tankers on order are not financed, according to Seaspan Corp., the Hong Kong-based ship lessor.”
Bloomberg.com (Oct 15.),
Is there a possibility that around 30% of orders could be canceled ?

9. III. What Happens in Shipyards in the Financial Crisis
A Certain amount of order cancellation will be positive to the shipping market
Cancellations under 30%
(In the long-term perspective)
Can be a positive impact to the shipping industry
Eventually, can be beneficial for the shipbuilding industry
World container roll-on/roll-off volume/World containership fleet
Source : Containerisation International Yearbook, Clarkson, estimated by Korea Eximbank

10. III. What Happens in Shipyards in the Financial Crisis
But the cancellation could bring about a critical impact in newly established shipyards
Order cancellations for Shipyards
Rearrangement of construction schedules
Monetary loss
Opportunity cost
And………….
If it becomes concentrated on S&M or newly established shipyards
Could be CRITICAL !!!

11. III. What Happens in Shipyards in the Financial Crisis
The expected actual order cancellation occurrences will be limited
In the 2008 stock market, it was confirmed by public announcement
20 ships and about 1.2 b$ worth of orders were canceled
They were mostly due to non-payment
Currently inquiries on order cancellation or schedule delay have been increasing in the shipyards
But it is difficult to cancel once the first payment has paid.
Owner’s Penalty : Engine order cost, design cost, opportunity cost of shipyard, and indemnity
Owner’s credit declines
Delivery schedule delay is not easy
Shipyards are reluctant to rearrange the construction schedule
Chartering Schedule by contract
Risks such as owner’s default and failure in acquiring finance still remain
Order cancellations will have a limited effect in the next 3 years than expected

12. IV. Finance for the Shipyards
In 2008, there was not a big trouble in Korean RG market
Forecasted : 2nd half of 2008, the RG market will reach its exposure limit
By suddenly increased contracts In 2007
But due to the decline in the orders this problem did not occur
Korea Shipbuilding Industry’s Contracts and RG (estimated)
(million Dollars)
2004
2005
2006
2007
2008P
Contracts
Big7
29,643
27,654
46,185
73,344
51,000
S&M
1,817
2,944
9,311
24,551
10,500
Total
31,460
30,598
55,496
97,895
61,500
Issued RG
20,009
20,745
28,858
61,478
37,331
Estimated by Korea Eximbank

13. IV. Finance for the Shipyards
The 2009 RG market will not be in difficulties
Expectation : There will be no problem in the RG issuing limit in 2009
Possibility : New orders < Delivery Amount
Possibility : Banks avoid RG issuing to newly established S&M shipyards
In 2007~08 some insurance companies took high risks for newly established S&M shipyards
But 2009 ?

14. IV. Finance for the Shipyards
In 2009 the demand for shipyard construction finance will increase
and commercial banks will need to prepare
Expectation : Increased amount of construction finance will be needed
In 2006~2008, shipyard enjoyed abundant liquidity
Next year, the decrease in contracts ⇒ insufficient liquidity
Estimation : The demand for construction finance will be around 5~7
trillion Won
38~54 billion dollars (1$ ≒1,300 Won)
This is around 10~14% of the total construction cost
For commercial banks,
New RG demand ↓
Construction finance demand ↑

15. V. Perspectives
1. In the next 3 years new shipbuilding orders are expected to be sluggish
- The aftereffect of global recession and oversupply of ships; shipping market situation can become worse
2. Competition among shipping companies will create a burden and
demolition of old ships will increase
3. The Korean shipbuilding industries will overcome the crisis with their
sufficient orderbooks

16. Research Fellow / Ph.D in MoT (+822-3779-6679, jongseo.yang@gmail.com)
Thank You !!
Jongseo Yang
Research Fellow / Ph.D in MoT
Korea Eximbank
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