8 out of 10 Small and Medium Shipbuilding Companies Say "Need for Realistic Delivery Prices"

Korea Federation of SMEs 'Survey on Management Conditions of Small and Medium Shipbuilding Industry'
Only 15.3% Expect Improvement in Management Situation by Year-End

It was found that 8 out of 10 small and medium shipbuilding companies need measures to realize realistic delivery prices. Photo by Asia Economy DB

[Asia Economy Reporter Kim Heeyoon] It has been found that 8 out of 10 small and medium shipbuilding companies need measures to realize delivery prices.

The Korea Federation of SMEs announced on the 21st that this was revealed as a result of conducting a ‘Management Status Survey of Small and Medium Shipbuilding Industry’ targeting 300 manufacturing companies related to the shipbuilding industry, such as small and medium ship and parts, and ship maintenance companies. In particular, more than half (58.7%) of the surveyed companies responded that even if supply costs (material costs, labor costs, expenses, etc.) rise, these costs are ‘not reflected in the delivery price,’ supporting the current situation.

Regarding the management performance outlook by the end of this year, 46.7% of the responding companies answered that it would be similar to the current situation. The forecast for deterioration was 38.0%, and the forecast for improvement was 15.3%. The reasons for expecting improvement (multiple responses) were ‘expansion of orders for small and medium-sized ships’ (39.1%) and ‘expansion of supply of raw materials to small and medium shipyards’ (37.0%), in that order. The reasons for expecting deterioration (multiple responses) were ‘lack of work’ (86.0%) and ‘freeze/reduction of delivery prices despite rising raw material prices’ (50.9%).

Regarding the financing conditions compared to the previous year (multiple responses), 7 out of 10 companies (69.7%) responded that ‘extension of maturity for existing loans and guarantees is possible,’ but 22.3% reported difficulties due to reduction of loan and guarantee limits.

The most urgent policy to resolve financial difficulties (multiple responses) was ‘interest rate reduction’ (68.7%), followed by ‘relaxation of credit and collateral evaluation standards’ (54.3%) and ‘expansion of win-win funds involving local governments, large corporations, and financial institutions’ (21.7%).

Also, among the surveyed companies, 8 out of 10 (83.0%) responded that they did not know about the Refund Guarantee (RG) system, indicating that the system is not being operated effectively.

The biggest reason companies gave for supply costs (material costs, labor costs, expenses, etc.) not being reflected in delivery prices was ‘intensified low-price competition in domestic and overseas ship orders’ (27.8%). This was followed by ‘induction of excessive competition by ordering parties’ (24.4%) and ‘excessive competition due to the lowest bid system for government ships’ (19.3%).

For policies most needed to enhance competitiveness (multiple responses), 82.7% chose ‘establishment and activation of support measures to realize delivery prices.’ This was followed by ‘securing government orders and supporting work through marine plant production’ (48.3%) and ‘support for participation in export consultations and trade delegations’ (12.7%).

Choo Moon-gap, Head of the Economic Policy Headquarters at the Korea Federation of SMEs, said, “Despite the record-high order performance of the domestic shipbuilding industry, many opinions suggest that small and medium shipbuilders will continue to face difficulties due to increased losses from rising raw material prices. Measures to improve clauses that induce the lowest bid system, which worsens the profitability of small and medium enterprises, the introduction of a delivery price linkage system, and the activation of the Refund Guarantee (RG) system should be promptly implemented in parallel to enhance the competitiveness of small and medium shipbuilders.”