The devious return of Samsung Heavy Industry

Reporter Xu Miaomiao

It is reported that in order to minimize losses in its offshore engineering business, Samsung Heavy Industries, as one of the three South Korean shipbuilding giants has recently included the 325000 DWT ore ship design into its portfolio, and is now vying for the VLOC order with Hyundai Heavy Industries, Daewoo shipbuilding and Chinese shipyards.Although the project is still in discussion and no final conclusion has been reached, it is an indisputable fact that Samsung heavy industry has decided to return to the bulk carrier construction market after nearly 20 years. From the development history of Samsung Heavy Industries, it can be seen that they abandoned the construction of general merchant ships 20 years ago to focus on the field of high valueadded ships. 20 years later, they are now returning to the construction of ordinary merchant ships. What is the reason behind this?

In 2008, as a result of the impact of the global economic situation, the newbuilding order received by Samsung Heavy Industry amounted to 15.3 billion dollars, a decrease of 27.8% over the previous year. To cope with the shipbuilding downturn, Samsung Heavy Industries decided to take new technology development as its future development trend and put its development focus on high value-added products, especially the offshore engineering equipment, rather than more profitable ordinary merchant ships. In the field of ordinary merchant ships, the orders received by Samsung Heavy Industry are mainly for container ships and oil tankers.

Bidding farewell to the ordinary merchant ships and stepping into the high value-added shipbuilding market has not brought smooth development to Samsung Heavy Industry over the last 20 years, as it has originally envisioned. In earlier years, especially from 2003, with drilling ship as its flagship product, Samsung Heavy Industries focused its business on marine engineering equipment and had a large share in the global market.This has enabled Samsung Heavy Industries and its sales volume in offshore engineering overtaking Hyundai Heavy Industries, the largest shipbuilding enterprise in the world to rank first in the world. Samsung Heavy Industry has also benefitted hugely from the rapid growth of the demand for this type of the ship.

However, just as the industry is admiring Samsung Heavy Industry for its wise decision to change its focus to offshore engineering and high value-added ships, a sudden downturn of the offshore engineering brought an unprecedented challenge to the offshore engineering business of Samsung Heavy Industry. Since 2015, the biggest risk faced by Samsung heavy industry is that it is difficult to deliver the orders, and the delivery situation in 2016 is still not optimistic. In addition to the difficult delivery of handheld orders, Samsung Heavy Industry is still facing a serious situation in receiving orders。

As of the third quarter of this year, the revenue of Samsung Heavy Industry has fallen sharply compared with the same period last year due to the delivery of low price ships and reduction of orders. On November 7th,Samsung Heavy Industry announced its third quarter performance, with its net income being about 23.4 billion KRW, or 21 million dollars, down by 82% than 128.6 billion KRW (or 0.1155 billion dollars) of the same period last year.

Cao Bo, a researcher of the Institute of CSIC, said that, for Samsung Heavy Industry, the market was the most important factor for its return to the bulk carrier construction market 20 years later. Whether the ship type is “high,rich and handsom” or an ordinary bulk carrier, for shipyards, only the order means the hope for survival. Among the largest shipyards in South Korea,Hyundai Heavy Industry has the best perspective. This year, it has gained a lot in the field of VLOC. Under the influence of Hyundai Heavy Industry, Samsung Heavy Industry may also take the chance to take orders for bulk carrier with no special technical construction difficulties.

Guo Wenjie, a researcher of Economic Research Center of CSSC, said that from the perspective of internal factors, Samsung Heavy Industry may adjust its development strategy step by step and adopt a more diversified product development strategy. At present,enterprises are facing difficulties in offshore engineering market recovery , offshore engineering delivery and the difficulty of lack of hand-held orders. It is a rational choice to actively catch the bulk carrier market which is currently turning good. From external factors,the international shipping market situation changes rapidly, this year has seen the accelerated growth of the international trade, significant growth of the seaborne trade, the rapid rise of freight, and the confidence of the owner in investment. With the obvious rebound of the bulk carrier market this year, it is rational for Samsung Heavy Industries to change with the market situation to overcome the periodical difficulty.