A different battle on the seas

The government has unveiled a 500 billion won ($432 million) aid program to prop up financing for shipbuilding. The new funds come on top of 9.5 trillion won already pumped in to ease liquidity at domestic shipyards in April in the face of a sluggish global market.

Additional support was inevitable to keep the local industry competitive amid escalating subsidies to rival shipbuilders. China has been enticing foreign ship owners to their yards by offering jaw-dropping financing services. As a result, the country toppled Korea in new orders as well as backlogs.

The prospects for global shipping and shipbuilding remain foggy and tumultuous. The global freight rate index for container shipping has plummeted 20 percent from April 2008 levels.

Ship orders this year are a mere fraction of the levels two to three years ago, while ship prices have dipped around 30 percent. Major ship owners have declared a moratorium on new purchases, canceling orders or putting off deliveries. The shipbuilding and shipping industries have entered a synchronized market slump. Even after the global economy recovers, it will take time to return things to normal.

Korea and China are now rivals in shipbuilding. Beijing has been unabashedly supporting the industry as a key growth engine. But we cannot engage in tit-for-tat aid. Instead we must think in the long term. Troubled shipbuilders will need bailouts, but restructuring must follow depending on agreements with creditors.

Large shipyards must prioritize and concentrate on high-value-added fields like large container carriers, cruise vessels and LNG carriers as well as maritime rigs. The industry’s future lies with quality, not quantity.

The government should not shy away from support to capable companies. Along with technology, financing serves as the key to survival in the industry. Chinese shipyards scooped up orders for oil carriers because their dollar-rich state export-import bank lent up to 90 percent of costs, even as other companies on the global market suffer a credit crunch. Our state-invested banks should also take a more aggressive stance in ship financing.