South Korean shipyard group Daewoo Shipbuilding & Marine Engineering (DSME), which was already under financial pressure, is currently hit by order cancellations and striking yard workers, which have made DSME’s top exec declare that the company finds itself in a kind of state of emergency at the moment.
According to CEO Park Du-seon, DSME’s situation has recently been seriously aggravated. The causes are numerous.
Firstly, the war in Ukraine has led to a deluge of Western sanctions against Russia and Russian business interests, and this has meant cancellations of newbuild orders from state-owned Russian tanker carrier Sovcomflot.
Two out of three orders on new liquefied natural gas (LNG) vessels have been annulled, report Korea Times and several other media.
DSME’s Russia-related order book has thus dived by KRW 300bn (USD 230m) and may be even further reduced.
Secondly, raw material prices have soared, and thirdly, yard workers hired via a subcontractor have been striking and blocking a dock for a month.
Debts have strongly increased
The current financial problems have made debts in the South Korean yard group increase, meaning debt in relation to the equity base made up 547% at the end of Q1 this year.
”The recent recovery in orders has helped to solve the problem of low production volume and to normalize business, but the prolonged illegal strike of subcontractors is shaking expectations,” says Park in a statement Wednesday.
DSME’s top management ”will operate on a 24-hour emergency system to take the lead in resolving the current crisis as soon as possible and create a company that can continue to grow.”
DSME’s current problems are added to the European Union’s decline earlier in the year of a merger between DSME and Hyundai Heavy Industries (HHI), which would have created the world’s leading shipyard with a market share of 21%.
The EU Commission with EU Executive VP and Commissioner for Competition Margrethe Vestager (above) particularly argued that the merger would result in a way too dominant player within the ship segment transporting LNG.
”The merger would have created a dominant position in the market for construction of large LNG carriers. This would have led to less choice, higher prices and ultimately less innovation for European customers,” said Vestager at the time.
DSME and HHI agreed on a merger back in March 2019. Since, the merger was approved in Singapore, China and Kazakhstan, while it still awaited green light in South Korea and Japan – and the EU. The latter declined.
English edit: Kristoffer Grønbæk