For all the talk of full orderbooks and rising newbuild prices, not every shipyard is enjoying today’s market conditions.
Top management at South Korean shipbuilding major Daewoo Shipbuilding & Marine Engineering (DSME) have let it be known the yard is facing severe financial difficulties.
DSME, which has been under state control since coming close to bankruptcy in the middle of the last decade, is once again facing a capital squeeze, admitting yesterday its debt ratio increased to 547% by the end of the first quarter because of a number of issues, including the cancellation of Russian ship orders, soaring raw material price increases and recent strikes by subcontractors.
CEO Park Doo-sun said the yard, one of the world’s largest, was entering an emergency period.
“The recent recovery in orders has helped to solve the problem of low production volume and to normalise business, but the prolonged illegal strike of subcontractors is shaking expectations,” Park said in a statement Wednesday. “All executives, including the president, 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.”
Two out of three Sovcomflot LNG orders have been cancelled at the yard this year in the wake of Russia’s invasion of Ukraine, knocking hundreds of millions of dollars from DSME’s cashflow. Meanwhile, steel plate prices, a key cost input into any newbuild, have doubled over the past two years.
DSME’s troubled situation has been hurt further by subcontracted workers from the Korea Metalworkers’ Union occupying a drydock last month, demanding a 30% increase in wages, a protest which has seen production schedules being cut.
Other Korean shipbuilders, after a gloomy decade, face similar problems to what DSME is encountering, with the nation’s shipbuilding association recently highlighting the severe manpower shortages the industry faces as it tries to handle sudden massive backlogs of orders that now stretch into 2025 and beyond.