Korea's major shipbuilders are incurring huge losses largely because of their rush to take on offshore plant orders.
For example, Hyundai Heavy Industries took losses of more than 3 trillion won last year, of which more than a half was due to offshore platform projects. The same is true for Samsung Heavy Industries and Daewoo Shipbuilding & Marine Engineering.
Industry experts said that's because the shipbuilders are not fully capable in basic design and core equipment production skills. All three Korean shipbuilders rely on European engineering firms such as Technip for basic designs while depending heavily on offshore services companies like National Oilwell Varco and MHWirth for critical equipment and components.
As the companies are dependent on designs and high value-added equipment on third-party suppliers, they are often unable to respond quickly to delays and other problems. For example, the shipbuilders undertake the building process even before the designs are ready and often are forced to redo the process after realizing the process is defective. In this case, all the responsibility for delay has to be assumed by the shipbuilder, not the design firm.
A Korean shipbuilding industry official said, "Given the number of specialized design firms and services companies is quite limited, shipbuilders are always in a weak bargaining position and find it hard to protest even when problems arise. If the delivery date is delayed, shipbuilders must pay penalties and then are disadvantaged in winning projects in the future."
