Totally under waterA.P. Moller-Maersk Group, better known as Maersk, is a Danish conglomerate running the world’s biggest container ship fleet. A company based in a country with a population of only five million accounts for 15 percent of the world’s maritime trade. The second-largest company in the industry is Mediterranean Shipping, based in Geneva — nowhere near the Mediterranean — and transports 13 percent of the world’s shipments. European shippers dominate shipping routes because they have run their operations through a meticulous calculation of supply and demand.
China Ocean Shipping Container Lines, which runs a fleet of 1,100 container ships, has embarked on a large-scale streamlining, shaving off 5 percent of its old vessels a year and 120,000 employees. It is rationalizing its operation to gear up for the country’s attempt to create a maritime Silk Road.
Maersk Line has Daewoo Shipbuilding & Marine Engineering (DSME) to thank for becoming the world’s largest freighter. DSME built the company’s family of Triple E-class vessels — 20 container ships each with 18,000-ton (approximately 1,390-TEU) capacity — from 2011. The Export-Import Bank of Korea financed contracts worth $1.9 billion. Securing the landmark order came first, followed by the money problem. The arrangement was possible after behind-the-scenes discussions among a presidential secretary, government authorities and DSME’s CEO.
The country’s two shippers, Hanjin Shipping and Hyundai Merchant Marine, charter foreign-owned ships by paying monthly fees instead of owning their own fleets. That is why container ships bear foreign corporate names even if they were mostly made in Korean dockyards. Authorities pitched in to help local shippers bring down charter rates. Local shippers are in a pitiful state, like a tenant pleading for a break in monthly rent.
Japanese and Chinese shipyards began streamlining 15 years ago. Major oil multinationals like Exxon Mobil also went on a diet, sensing a lengthy global slump ahead. Korea Inc., fearful of public criticism and labor protest, aggressively expanded. A reckless strategy pushed the industries to the brink of doom.
Global cargo capacity is estimated at 1 billion tons. The shipbuilding capacity of Korea, China and Japan combined is 100 million tons a year. A ship typically lasts 30 years. So it is not difficult to figure out why Korean shipyards can no longer pull in orders. Rivals in Japan, China and the U.S. watched Korean dockyards’ expansionists with concern and suspicion.
Extreme oil drilling platforms compensated for sagging container ship demand. But those orders are now a nightmare for local companies. They must fulfill the orders, even when most of them have been canceled due to low oil prices.
Bills for outsourced designing, special engineering and equipment are pouring in. Taxpayers will have to pay for a 12 trillion won ($10 billion) bailout fund to keep shipbuilders and shippers afloat. Shipbuilders belatedly pledged to cut as many as 80,000 employees in return for the bailout.
The metal industry and shipbuilding union have been demanding long-term measures to keep the shipbuilding industry afloat since 2012, but they were met with indifference. Few managers or politicians want to risk their jobs to push a restructuring that could cause massive layoffs. The unions have their reasons to protest such belated restructuring actions.
The so-called emergency actions the government has drawn up are hardly reliable, as they do not present a new business model for the industry. They are makeshift measures to sustain the business and buy time until global demand revives. They do not ensure the industry’s viability over the next 10 years based on industry conditions.
The lives of the three shipbuilders have once again been extended by political — not economic — judgment. Strict conditions must be attached when there is a colossal public fund of 12 trillion won at risk.
Whoever was responsible for wrecking corporate finances and squandering public funds must be tracked down and punished. The self-rescue plans the shipbuilders have come up with must be scrutinized by outside experts for feasibility and execution. The companies must be told they won’t receive a cent unless they come up with emergency actions and a new business model. The government is naïve to think it can save all three shipbuilders and two shippers. Without rigorous rationalization, streamlining and restructuring, there can be no hope for those local industries.
And Hail Mary measures are the last thing needed.
JoongAng Ilbo, June 14, Page 31
Translation by the Korea JoongAng Daily staff.
*The author is a professor of sociology at Seoul National University.