Report from the Commission to the Council on the situation in world shipbuilding
Date: 1999-10-13
Institutions: European Commission
Subjects: international market, market supervision, report, shipbuilding

COMMISSION OF THE  EUROPEAN COMMUNITIES 

Brussels,  13.10.1999 

COM(1999) 474 final 

REPORT FROM THE COMMISSION TO THE COUNCIL 

On 

THE SITUATION IN WORLD SHIPBUILDING 

TABLE OF CONTENTS 

1. 

Introduction 

2. 

General Market Analysis 

Demand and Supply 
Price Developments 
Market Shares 
Market Composition 
The Container Ships Segment 
Conclusions for Chapter 2 

3.  Detailed Market Monitoring and Analysis 

Nature of shipbuilding contracts 
Study on shipbuilding market monitoring 
Investigated orders 
Impact on EU yards 
South Korean financial sector 
Conclusions for Chapter 3 

4. 

Conclusions and Recommended Actions 

5. 

List of Tables and Graphs 

6. 

References 

Details of Cost Model Used 

Annex I 
Annex 11  Details of Investigated Shipyards (Halla, Daedong and Daewoo) 
Annex Ill  ·  Data Used in Graphical Presentations 

page 1 

page2 

page2 
page4 
page5 
page6 
page7 
pageS 

page9 

page9 
page 10 
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page 12 
page 13 
page 14 

page 15 

page 17 

page 18 

1. 

Introduction 

The world market for  merchant ships  and  the  world shipbuilding  industry are facing  serious difficulties, 
with  shipbuilding  prices  plummeting  and  future  demand  likely  to  remain  weak  for  some  years.  Over 
capacity  in  the  shipbuilding  industry  is  expected to  grow in coming years,  due to  a  combination  of the 
coming  on  line  of new  facilities  (also  in  emerging  shipbuilding  nations  such  as  China),  the  potential 
conversion of naval shipyards to commercial productic- ,  ~nd increased productivity. 

A competitive shipbuilding industry is  important to the European Union and contributes to  its  economic 
and  social  development  by providing  a  substantial  market for  a  range  of industries  and  by  maintaining 
employment in a number of regions,  many of which are  already suffering a high rate  of unemployment. 
Shipbuilding also employs a number of advanced technologies for products and production and therefore 
is an important element in a developed industrial culture. 

Unfortunately  all  efforts  to  create  a  sustainable  environment  for  EU  shipyards  have  been  severely 
hampered  by  the  impact  of the  Asian  crisis,  and  by  the  fact  that  the  OECD  Agreement  "Respecting 
Normal Competitive Conditions in the Commercial  Shipbuilding and Repair Industry"  of 21  December 
1994 did not enter into  force - an Agreement which thf'  Community ratified,  believing that it  would  be 
the  best option to  enable  Community  shipyards  to  co1npete  under fair  trading  conditions.  In particular, 
Korean yards have,  mainly between  1994 and  1996,  xpanded shipbuilding capacities in a  way that is 
not justified by global market conditions, and they no\v need to fill these surplus capacities. 

The  Council Regulation (EC) No  1540/98  establishing a new set of rules  for  state aid to the  sector for 
the period 1999-2003 was designed to  address the global question of the future  of the EU shipbuilding 
industry in a context where, in absence of the OECD Agreement, international disciplines in this sector 
are  not  to  be  expected  soon.  The  regulation  also  requires  the  European  Commission  to 1 present  to  the 
Council  a  report  on  the  market  situation  and  appraise  whether  European  yards  are  affected  by  anti 
competitive practices.  If it is  established that at'}ti-competitive practices of any kind are causing injury to 
industry,  the  Commission  is,  where  appropriate,  to  propose  to  the  Council  measures  to  address  the 
problem. 

This  report  analyses  the  current  market  situation,  especially  concerning  the  production  in  Asian 
shipyards,  and  presents  a  first  set  of  possible  lines  of  action  that  could  address  problems  from 
individual  damaging  shipbuilding  contracts  or  non-market  business  practices  by  Far-Eastern 
cotnpetitors. It thus responds to  the  request laid down in Council Regulation (EC) No  1540/98.  As this 
report  is  the  first  in  this  respect  and  others  will  follow,  it  does  not  aim  to  cover the  entirety  of world 
shipbuilding  in  all  its  technological  and  economic  aspects,  but  rather  highligh~s the  most  important and 
recent problems and developments, thus providing guidance for  future actions.  Additional measures may 
be required and would be addressed as appropriate in forth-coming reports. 

2. 

General Market Analysis 

Demand and Supply 

The world shipbuilding market has been in imbalance over a long period of time and all relevant market 
participants  expect  thi~ situation  to  persist  and  even  deteriorate.  The  demand  side  in  particular  is  now 
widely  considered  to  be  on  a  longer-term  downturn.  As  can  be  seen  in  Figure  1 the  supply  forecasts 
continue  to  exceed  the  demand  forecasts.  Although  the  major  shipbuilders'  associations  AWES 
(Associat~on of European Shipbuilders  and  Shiprepairers) and  SAJ (Shipbuilders'  Association of Japan) 
on the one hand, and KSA (Korean Shipbuilders' Association) on the other, see future demand and supply 
at  different levels (with demand in  general  staying stable), and though they also  have  different opinions 
regarding the volume of the resulting  lack in demand,  both sides agree that the  gap  between supply and 
demand will widen. 

The total new building capacity world-wide currently amounts to nearly 20 Mio. cgt (compensated gross 
tonnes,  a  measurement  combining  ship  size  and  shiptype-specific  building  effort).  Total  new 
shipbuilding orders were 20.935  Mio.  cgt in 1997 and  18.359 Mio. cgt in 1998. For the first half of 1999 
new orders of 7.86 Mio.  cgt were reported, which indicates that demand is indeed increasingly out of line 
with supply and that 1997 and  1998 were exceptional years with regard to the demand/supply ratio. 

Fig.  1* 
Completed ships 1985-1998,  supply and demand forecasts by AWESISAJ andKSA,  in Mio.  cgt 

24  ...,--------------~· 

20  + - - - - - -

16+ - - - - - -

.~ ... ···· 

~  ~  ~  ~  ~  ~  ~  ~  ~  ~  ~  ~  ~ 

~  ~  ~  ~  ~  ~  ~  ~  ~  ~  ~  ~  ~ 

Year 

r_.,_completed ships 1985-1998 

\-+--Demand forecast KSA 2001-2005 

L __.,_Supply forecast KSA 2000-2005 

-11- Demand forecast AWES/SAJ 1999-2010 I 
I 
---Supply forecast AWES/SAJ 2000-2005  \ 

_____________________ j 

* The data underlying the graphical representations and the source references can ·be found in Annex 111. 

2 

It is  notable  that  production  in  1998  had  only  reached  the  level  of 1978  after  many  years  of decline. 
Moreover 1998 was a year that saw a high number of orders and completions, partly due to an abnormal 
decrease in prices since the beginning of 1997 and a booming demand for passenger vessels as the cruise 
· market continued to expand. 

Under these conditions stable market conditions are unlikely to evolve soon, unless new building capacity 
is removed from the market on a significant scale. 

The  most disturbing  element is  the  steep  decline  in  prices  for  newly  built vessels  (see  next paragraph) 
which has a significant impact on demand.  Ship owners react to historically low prices by placing orders 
that can be considered a "bet on the future", i.e. at higher prices some ships would be ordered only later or 
not at all.  It can be expected that this type of additional demand in recent years will be compensated by a 
significantly lower demand later which makes it difficult for shipyards to keep a balanced order book and 
a consistent level of employment. 

The supply side of the market is  still dominated by three major regions:  South Korea,  Japan and the EU 
which take  a combined market share of some  80%.  This  report therefore  focuses  on these  regions  and 
their most important shipbuilding products.  Niche  markets and  shipbuilding activities  outside the  three 
main regions will not be addressed here. 

Fig.  2 
Available building capacities in Japan,  Korea and the EU in thousands of cgt,  1988-1997 

6000 

5000 

4000 

3000 

2000 

•  •  •  •  •  •  •  •  •  • 

--+-BJ 
-4--JAPAN 
_._s. KOREA 

Shipbuilding  capacity  in Korea has  grown  from  around  1. 7  Mio  cgt  in  1988  to  4.6  Mio  cgt  in  1997 
(+ 170%).  In the same period capacities in the EU have been reduced from 4.4 Mio cgt in  1988 to 3.1 
Mio cgt in 1997 (-29.5%).  Capacities in the third major shipbuilding area,  Japan, have remained stable 
at 5.6 Mio ~gt. The increase on the supply side has mainly to  be attributed to  South Korean expansion 
since  1994.  As Korea did not report figures  on cgt capacities to  OECD  in the past, these  figures  were 
calculated from completed gross tonnes using varying conversion factors which reflect the evolution in 
the product mix of Korean yards (see Annex Ill). 

3 

. 

Price Developments 
As  already  mentioned  prices for  new  vessels  have  suffered  severely  as  capacities  were  increased,  and 
some competitors are  desperate to  attract orders to  fill  these capacities.  Specific cases in this regard will 
be discussed in chapter 3. It is obvious that the decline in achievable prices is not homogeneous: different 
shiptypes  are  used  in  different  business  environments,  freight  rates  (as  a  major  parameter  for  the 
attainable  return  on  investment)  depend  on  the  commodities  and  the  trading  areas  in  question,  and 
shipowners  show  different  attitudes  depending  on  the  particular  market.  The  table  below  gives  some 
indications on the decline in prices for some selected shiptypes which can be considered as representative 
for the  bulk of new merchant ships.  The prices are  calculated averages,  derived from  available  contract 
information. Prices have gone down across the board and have now reached a level that in many cases do 
not allow shipyards to cover operating costs. 

Table  1 
Evolution of prices for newly built ships (in Millions of US Dollars) 

Panamax Container Carrier 
1100 TEU Container Carrier 
Very Large Crude Oil Carrier (VLCC) 
Capesize Bulk Carrier 
Panamax Bulk Carrier 
Tweendecker 15.000 dwt 

1997 
53.0 
20.0 
83.0 
40.5 
27.0 
165 

1998 
42.0 
18.0 
72.5 
33.0 
20.0 
14.0 

March 1999 
37.5 
17.0 
69.5 
31.5 
18.5 
13.5 

Source: Clarkson World Sl:)ipyard Monitor. 
1997  and  1998  prices  are  the  average  of reported prices  in  the  respective  years.  For  1999,  prices  are  the  average  reported 
prices dur!ng the ftrst quarter of that year. 

Table 2 
Evolution of prices for newly built ships (annual changes in percent) 

Panamax Container Carrier 
1100 TEU Container Carrier 
Very Large Crude Oil Carrier (VLCC) 
Capesize Bulk Carrier 
Panamax Bulk Carrier 
Tweendecker 15,000 dwt 

1997/1998 
-20.75% 
-10.00% 
-12.6'5% 
-18.52%> 
-25.93% 
-15.15%, 

1998/1999 
-10.71% 
-5.56% 
-4.14o/o 
-4.55% 
-7.50% 
-3.57o/o 

1997/March 1999 
-29.25% 
-15.00% 
-16.27°/o 
-22.22% 
-31.48o/o 
-18.18o/o 

The  biggest  price  decreases  are  recorded  with  Panamax  bulk  carriers  and  P~amax ~ontainer vessels. 
Both  types  of ships  are  very  important  to  the  Korean  shipbuilding  industry  in  general  and  to  some 
investigated yards in particular. This report will try to indicate the extent to which these market segments 
have been targeted by Korean competitors and how this has affected prices (and consequently created an 
"artificial demand"). 

It should be noted that this  significant decline in prices, affecting all major shiptypes, not only threatens 
the profitability of shipyards, it also poses problems to the shipping community as tonnage ordered before 
the  price  decline  needs  to  be  reassessed  in  its  asset  value.  With  a  lower  asset  value  creditors  ask  for 
additional  collateral  coverage,  thereby  increasing  financing  costs  and  cutting  into  the  profits  of ship 
owners. 

4 

Market Shares 
As a consequence of the fierce  competition in the shipbuilding market and the dramatically lower prices, 
market shares have shifted. Figure 3 shows the breakdown of market shares by countries and regions for 
the  period  1997 to  the  first  half of 1999.  It can be  argued that this  period was  exceptional  for  various 
reasons,  however,  it  would  be  beyond  th~ scope  of this  report  to  analyse  the  market  movements  in  a 
larger  timeframe.  A  wider  perspective  would  also  not  change  the  overall  picture  of  a  market  in 
difficulties. 

Fig.  3 
World market shares by country/region (new orders,  based on cgt),  1997,  1998 and 1st half of 1999 

OTHER 
15% 

REST OF 
AWES 

USA 

OTHER 
14% 

1997 

OTHER 
17% 

I 
REST OF 
AWES 
4% 

1998 

REST OF 
AWES 

1st half 1999 

The  significant increase  of EU market share  in new orders  in  1998  was  due  to  the  Asian crisis  and the 
financing  problems  that  came  with  it  and  cannot  be  considered  as  part  of a  larger  trend.  There  were 
almost no orders awarded to  South Korean shipyards in the first half of 1998 as  owners took a "wait and 
see"  position  and  banks  were  unable  to  provide  financing.  This  makes  the  recovery  of Korean  market 
share  in the  second half of 1998  even more remarkable.  As can be  seen,  Korean market share  is  on the 
rise again after the specific financing problems and economic uncertainties in 1998 were overcome. South 
Korea  has  now its  largest  market  share  ever  and  has  also  overtaken  Japan  (a  declared  objective  of the 
Korean government and industry). China has also managed to increase market share which is reflected in 
the  increase  of "others".  The  USA  plays  a  minor  role  in  world  shipbuilding,  but  various  protectionist 
elements (Chapter XI, Jones Act, navy orders) assure that US yards are able to stay in business and could, 

5 

under  certain  conditions,  come  back  into  commercial  shipbuilding  in  the  future.  Information  on 
completed tonnage shows a similar structure; the relevant data can be found in the annexes. 

Japan which until now has been able to  "buffer" the negative market trend through domestic demand, has 
seen a decline of some 20% in ~ew orders in the first six months of 1999. As a result yards have started to 
reorganise  and  there  is  persistent  talk  of consolidating  the  seven  major  Japanese  shipyards  into  four 
groups.  The EU' s market share  decreased  in the  first  half of 1999 which is  in line with the longer term 
trend.  EU  shipyards  are  coming  under  increasing  pressure  which  is  also  reflected  in  the  fact  that  the 
British-Norwegian K vremer Group (Europa's largest shipbuilding group) decided in early  1999 to sell all 
its  shipbuilding  operations,  claiming  that  the  return  from  shipbuilding  operations  was  too  low  to  keep 
them  attractive  to  K vremer's  investors  and  shareholders.  Moreover two  shipyards  in Europe  have  been 
closed  or are  about to  close  (Aarhus  Flydedok  in  Denmark and  Les  Ateliers  et Chantiers  du  Havre  in 
France, respectively). 

Market Composition 
Figure t.,  provides  a  snapshot  of the  distribution  of ship  types  ordered  in  1998.  The  largest  market 
segments  are  those  for  crude  oil  tankers,  bulk  carriers,  product/chemical  carriers,  general  cargo  ships, 
container vessels  and  passenge_r  ships.  EU  yards  which  have  basically  ceased to  produce  ships  in the 
large  volume market  segments  of crude  oil  carriers,  bulk carriers and  general  cargo  ships  are  now also 
facing  increasing  competition  in  the  segments  of product/chemical  carriers,  ferries  and  full  container 
ships.  Only passenger ships and some types of ferries  remain areas in which Europe dominates because 
EU yards are technological leaders and therefore still attract the majority of orders. It should, however, be 
noted  th~t  a  major  EU  cruise  operator  has  recently  awarded  two  important  contracts  to  a  Japanese 
shipyard  which could  ultimately  endanger the  dominant  market position that EU yards  still  enjoy.  EU 
yards  have  continuously  lost  market  shares  to  Asian  competitors  even  in  segments  which  they 
traditionally dominated, despite major efforts to innovate and to raise productivity. 

Fig.  4 
World market shares by shiptype (orders,  based on cgt),  1998 

FISHING 
VESSELS 
2°/o 

OTHER NON  OTHER VESSELS 

CARGO VESSELS 
9% 

1% 

.CRUDE OIL 
TANKERS 
15o/~ 

PASSENGER 
SHIPS 
9% 

FERRIES 
3°/o 

GAS  CARRIERS 
3°/o 

CAR CARRIERS 
4o/o 

Ro-Ro VESSELS 
2% 

FULL CONTAINE 
HIGH  SPEED 
LINER 
18% 

PRODUCT AND 
CHEMICAL 
CARRIERS 
9o/o 

BULK CARRIERS 
14% 

11 o/o 

6· 

The Container Ships Segment 

In terms  of cgt,  container vessels represented the  largest market  segment in  1998.  Container ships  have 
been  a  major product of Japanese  and  EU  yards  in  the  past  and  they  are  the  "backbone"  of world liner 
shipping. European yards have had a particular expertise in very large container ships (Post-Panan1ax), as 
these  vessels  are  technologically denlanding  and  follow  different  and  more  complex  design  paradigms. 
As  Korean  competitors  are  obviously  targeting  the  whole  containe'r  ship  market  segrnent,  this  merits  a 
closer look.  Figure 5 shows the developn1ent in market shares for Japan, South Korea and the EU and the 
overall order volume in 1997, 1998 and the  1st half of 1999. 

Fig.  5 
Development of market shares for Japan,  South Korea and the EU in  container vessels (orders,  based on 
cgt),  1997 to the first half of 1999 

1 OOo/o 

80% 

20o/o 

oOTHERS 
oJAPAN 

•  SOUTH KOREA 

1997 

16,32% 

44,62% 

1998 

1st half of 1999 

1'9,30% 

21,27% 

8,29% 

8,83% 

68,25% 

Korean  yards  have  made  very  significant  inroads  into  the  rnarket  for  container  vessels  since  1997. 
Although the statistics indicate that Korean yards have expanded market share at the expense of Japanese 
and other non-EU competitors, EU shipyards have clearly failed to participate in the  1998 order boon1  on 
the same scale as  Korea,  and seem bound to  concentrate on maintaining their cornparatively low rnarket 
share  of ea.  15% whereas  the ,Korean  share  has  now reached nearly  70%  in terrns  of cgt.  It  should  be 
noted that overall orders (world total in cgt) for container vessels increased by 30%, frotn  1997 (2.43  Mio. 
cgt) to 1998 (3 .16 Mio. cgt) and stood at 1.12 Mio. cgt for the first half of.1999. 

There  is  concern that the  developments  in the  market for  container vessels  could  be  repeated for  ferries 
and cruise vessels.  Asian competitors have  a track record of attracting  orders for  sophisticated tonnage 
through extremely low prices, hoping that they will  improve their· technical  abilities  in the course of the 
project and gain the reputation that is needed to attract more orders.  In the case of the hvo cruise vessels 
ordered  in Japan,  there  are  clear  statements  from  the  building  yard  that  the  order  does  not  have  to  be 
profitable as long as the yard is able to  deliver the quality that the market den1ands, thus putting the yard 
on the map of cruise operators.  The investigated ferry  order at  Samsung (see  chapter 3)  seems to  follow 
the same business strategy. 

7 

Conclusions for Chapter 2 
•  Overcapacities  in  the  shipbuilding  market  exist  and  are  very  likely  to  grow due  to  both  decreasing 

11 

demand and increasing supply. 
South Korean capacity expansion, especially in the period 1994 to  1996, has been the main reason tor 
the  continuing  and  growing  imbalance,  and  Korean  yards  have  great  difficulties  in  attracting  a 
sufficient number of orders to cover costs. 

•  Prices  have  plummeted  in  particular  for  ship  types  for  which  Korea  competes,  bringing  demand 
forward  and  shifting  market  shares  to  Korean  yards.  Most  significant is  the  shift in market  shares 
with regard to container vessels where Korea is probably nearing a dominant position.  China which is 
seen by many as a future shipbuilding power has also increased market share in the period covered by 
this report. 

8 

3.  Detailed Market Monitoring and Analysis 

Nature of shipbuilding contracts 
Merchant  ships  are  capital  goods  with  some  distinctive  features  that  make  it  difficult  for  outsiders  to 
analyse  their  true  building  costs.  A  precise  calculation  very  much  depends  on  information  about  the 
particular building project and the yard facilities used, both of which are normally kept confidential. 

•  Ships are very large technical objects, typically cvusisting of a steel hull and steel deckhouse and a 

. great number of technical sub~ systems and outfitting items. 

•  Ships  are  rarely  produced  in  large  series  and  their  design  is  therefore  not  uniform.  Various 
materials  from  a  great  number  of suppliers  are  used. in  the  construction  of ships  which  requires 
close  co-operation  between  yards  and  suppliers.  As  production  is  often  "one-off',  the  specific 
conditions  of the  building  yard  play  a  significant  role  with  regard  to  costs,  quality  and  delivery 
schedule. 

· 

•  Typically  shipowners  are  single  entrepreneurs  or  are  represented  by  a  small  group  of people. 
Orders are placed with one yard per project, giving a combination of large order volumes and rather 
close and intimate business relations  that are  rarely transparent to  the public.  It should,  how~ver, 
be  noted  that  the  shipping  industry  is  undergoillg  a  concentration  process  that  will  also  affect 
shipbuilding through a demand for larger series and standardised designs. 

•  The  shipbuilding  market  for  merchant  ships  is  :1  global  one.  European  shipowners  in  particular 
place orders around the world, reacting to advaatageous conditions and exploiting the differences in 
prices  and  financing  conditions.  Korean  and  Japanese  owners,  however,  traditionally  tend  to 
source with domestic yards, giving them a certain amount of demand they can rely on. 

•  Shipowners often have preferences for  the  procurement of certain equipment items,  depending on 
previous experience and the composition and training of their crews.  Shipyards on the other hand 
prefer to have a limited set of suppliers to achieve a high productivity and smooth production flow. 
These  diverging  interests  often  resr:lt  in  detailed  negotiations  on the  composition of makers'  lists 
which also affect prices. 
It takes a significant amount of time to  construct a ship.  Shipowners who have to react to  the  fast 
changing  demands  of the  freight  market  and  the  global  economy  therefore  prefer  to  have  the 
shortest delivery time possible and are willing to pay a premium.  Shipyards that are able to deliver 
swiftly and reliably can therefore afford to charge higher prices. 

• 

•  Another important set of players  in shipbuilding projects  are  the  clas~ification societies which are 
in  charge  of the  technical  approval  of design  and  construction.  For certain  sophisticated tonnage 
using  non-standard  design  features,  details  are  subject to  discussions  between yard,  classification 
society and owner.  This can result in higher or lower costs, depending on the particular project. 
•  The · financing  of ship  construction  differs  from  the  financing  of oth~r,  large  scale  engineering 
projects.  Financing  costs  can  have  important  implications  for  individual  projects  and  the  overall 
price.  Financing schemes range from  "front end payment" to  "tail end payment".  In the first case a 
significant down-payment is  made  by the  buyer,  resulting  in financial  gains  for  the  shipyard  from 
interest.  In the latter case the shipyard has to  finance  a great part of the building costs, resulting in 
additional costs for the particular project. 

These characteristics lead to  a great number of variables that need to  be  factored  in when analysing the 
true production costs for individual vessels and prove (or disprove) allegations of unfair pricing. 

9 

Study on Shipbuilding Market Monitoring 
In order to  collect the necessary data,  the  European Commission has recourse to independent,  reliable 
consultants.  Their ongoing study covers the following elements: 

• 

• 

Definition of a cos~ breakdown model,  including all  relevant cost components both of the direct ship 
production and the shipyard in general.  The model  is  based on cost elements covering direct costs 
(materials, labour,  equipment, etc.)  and indirect costs (financing of the ship and of the production 
equipment, overhead, insurance, etc.).  More details of the cost rnodel can be found in Annex I. 
Criteria to  evaluate  whether damage  is  caused  to  EU  yards  due  to  unfair  practices  on the  part  of 
competitors outside the EU.  Two elements are considered for the evaluation: injurious pricing and 
injury, and subsidies.  Concernin-g  injurious pricing the contract price is compared to the price for 
a  like vessel when sold to  a buyer of the  exporting country (this "normal value" should be  based 
on the price paid or payable in the normal course of trade).  Concerning countervailable subsidies 
an analysis is made whether there appears to be any subsidy as defined in the WTO Agreement on 
Subsidies  and  Countervailing  Measures  (e.g.  financial  contribution 'from  the  government  or  any 
public  body  involving  either  a  direct  transfer.  or  non-collection  of  funds  otherwise  due,  or 
provision of goods or services· which would normally be borne by the company). 

The  study  covers  shipyards  in Korea,  Japan,  China  and· Singapore  and  a  range  of shiptypes  (>5000 
gross tonnes), mainly: crude oil tankers, bulk and OBO carriers, product and chemical carriers, general 
cargo  ships  and  re~fers, containerships,  RO-RO  vessels,  gas  carriers,  passenger  ships  and  off shore 
vessels.  A total of 33  ships contracts are to be analysed within the study. 

Orders for new ships are selected for analysis in co-operation with the European shipbuilding industry 
to  ensure  that  technical  data  from  comparable  projects  is  available  and  technical  and  economic 
assumptions can be kept to a minimum.  Given the critical nature of such an investigation, parameters 
are to be kept on the "safe side"  to assure that calculated minimum costs for particular projects cannot 
be challenged. 

Investigated orders 
To date nine orders for new ships have been analysed, all awarded to South Korean yards.  The European 
Commission assured a balanced selection of cases while taking into account the overall political objective 
of the exercise, the relative urgency of the matter and the availability of meaningful data for comparison. 
Investigations  may  be  extended  to  shipyards  in  other  Asian  countries  iri  the  course  of the  study  if 
necessary.  The cases covered so far are: 
•  Cable layer (series of 13  ships), 9,280 cgt, to be built at Hyt.mdai Mipo yard 
•  3,400 TEU container ship (series of 5), 27,750 cgt, to be built atSamsung tieavy Industries 
•  Passenger Ro/Ro ferry (series of2), 25,200 cgt, to be built at Samsung Heavy Industries 
•  6,800 TEU container ship (series of2), 52,390 cgt, to be built at Hyundai Heavy Industries 
•  3,500  TEU  container  ship  (series  of 2),  28,500  cgt,  to  be  built  at  Halla  Engineering  and  Heavy 

Industries 

•  Panamax bulk carrier,  19,500 cgt, to be built at Halla Engineering and Heavy Industries 
•  Panamax bulk carrier, 22,600 cgt, to be built at Daedong Shipbuilding Co. Ltd. 
•  Product carrier,  19,074 cgt, to be built at Daedong Shipbuilding Co. Ltd. 
•  Very Large Crude Oil Carrier (VLCC), 47,100 cgt, to be built at Daewoo Heavy Industries 

Not all of the  selected projects are  confirmed orders and in some cases the  financing  is not yet in place, 
which  could  lead to  higher or lower order prices,  depending  on the  particular situation.  The  European 
Commission is,  however,  convinced that the  information entered into the  analysis  is  at present the  best 

10 

available  and  that  the  selected  shipbuilding  projects  give  a  fair  illustration  of the  abnormal  financial 
conditions at which orders have  recently  been taken by  Korean yards.  As  the  cost model  is  constantly 
refined and previous analyses are updated accordingly, a final  assessment can only be provided in a later 
report.  However,  as  mentioned  above,  all  parameters  are  set  conservatively  and  changes  should  only 
o£cur in the direction of even greater differences between order price and normal building price.  Another 
factor of uncertainty is the actual order price.  Different sources often quote different prices and for larger 
series the individual order price might be lower because of (real or perceived) economies of scale.  In this 
context  it  also  needs  to  be  mentioned  that  the  model  tries  to  reflect  the  actual  behaviour  of Asian 
competitors,  e.g.  co~ts for currency hedging are not factored  in for  Korean shipyards as  it is known that 
these precautions typically are not taken. 

The following tables summarises the findings so far: 

Table  3 
Comparison of order prices and calculated construction prices for selected new ships 

Cable layer 
(Hyundai) 
Container ship 3.400 TEU 
(Samsung) 
Passenger Ro/Ro ferry 
(Samsung) 
Container ship 6.800 TEU 
(Hyundai) 
Container ship 3.500 TEU 
(Halla) 
Panamax bulk carrier 
(Halla) 
Panamax bulk carrier 
(Daedong) 
Product carrier 
·(Daedong) 
VLCC 
(Daewoo) 

Reported order price  Calculated building price 
in Mio. US Dollars 
37.3 

. in Mio. US Dollars 

45.4 

36 

69.5 

73.5 

38 

18.9 

. 18.5 

21.5 

68.5 

56.4 

90.9 

86.9 

52.3 

3.1.8 

24.9 

24.9 

84.3 

Loss/gain in percent of 
calculated building· price 
-17.84% 

-36.17o/o 

-23.54o/o 

-15.42% 

-27.34% 

-40.56%  i 

-25.70% 

-13.65%  1 

I 
-18.74% I 

j 

At first sight the results presented in Table 3 seem to indicate that all orders investigated are loss making. 
However,  it  may  be  considered  as  acceptable  business  practice  that  a  yard  renounces  any  profit  for  a 
specific contract or accept to build a ship at a small  loss  if this allows it to make a  strategic foray  into  a 
new market segment, provided that this does not become a permanent policy and that the  loss  from  one 
contract is covered through other profitable contracts.  Under these circumstances, and allowing a certain 
error  margin  for  the  cost  model,  a  reported  contract  price  of up  to  10-13%  lower  than  the  calculated 
"normal  price"  could  be  considered  as  acceptable.  Consequently  one  of the  investigated  orders  (the 
product carrier from Daedong) can be seen as in line with normal business practice.  The remaining eight 
orders  are,  however,  clearly  loss-making,  with  losses  between  15  and  40%  of the  calculated  normal 
building price.  Since Halla and Daedong are technically bankrupt and  have been operating under court 
receivership since December 1997 and February 1997 respectively, further investigation is needed to find 

11 

out  \vhy  such orders  are  accepted  and  how the  loss  is  accounted for.  The  cases  of Halla,  Daedong  and 
Dae\voo are discussed later in the report in Annex II. 

There are  indications that Korean yards  fix  vessel  prices  according to  the  level  the  shipyard  perceives 
the market will beac rather than through a  bottom-up estimate,  and production and purchasing targets 
are set accordingly.  Reports indicate that Korean yards work backwards from the ship price to allocate 
the value to  each iten1 of supply.  Often initial bid prices by suppliers are ignored by Korean shipyards 
and a  target price  is  given.  This policy is  acceded to  by Korean  equipment suppliers,  irrespective  of 
the  effect it may  have  on their  ov1n  business.  One  European equipment manufacturer questioned  has 
undertaken  significant  research  into  his  comv~titors in  Korea.  He  found  that  his  biggest  competitor 
published  a  loss  of about  J0~1o  of turnover  and  that other  Korean  manufacturers  were  facing  similar 
problems.  As equipment ~.uppliers in South Korea are often part oft~e same larger conglomerates, the 
so-called chaebols, as the  shipyard~;, true costs for particular operations are difficult to establish. 

Impact on EtJ yards 
A negative impact on EU yards  is assumed Vv'hen the order is made at a price which does not cover costs 
and  \vhich  is  low  enough  to  keep  the  order out of reach  of EU yards.  This  is particularly  true  if the 
O\vner  has  traditionally  placed  orders  with  EU  yards.  However,  even  where  Asian  competitors  had 
significant market shares in ·the  past (e.g.  for  container ships or bulk carriers) the depressive nature of 
this pricing policy will have a negative effect on the market in general and, on this basis, the price may 
be perceived to be injurious.  'J.lhilst this contract may not take work directly from an EU builder there 
will  be  a  "trickle  down"  effect  jn  the  n1arket  as  a  whole,  which  will  have  a  detrimental  effect  on 
shipbuilding in the EU. 

All  of the 9 orders investigated had  an impact on EU yards.  The key elements for the investigated cases 
arc as follo\vs: 

• 

• 

• 

• 

The  cable  layer  order  at  Hyundai  fits  into  the  portfolio  of the  yard  which has  past experience  with 
specialised tonnage, but the building of cable layers has so far been a European domain and the order 
is  the  first  of this  kind  for  Hyundai  Mipo  yard.  The  owner  is  a  complete  newcomer  and  has  not 
ordered any ships before. 

The  3400  TEU container  ship  order at  San1sung  is common practice  for this yard.  The owner has, 
ho\vever,  had a  very close rdationship with EU yards in the past,  and this order is a major departure 
from past ordering practice, 

The passenger Ro/Ro  ferry  order at  Samsung marks a  departure from the traditional portfolio  of the 
yard and for the owner this is the  first order placed outside Europe.  Ferries_ofthis type and size have 
been  a  dorrmin  of EU  yards  and  the  fact  that  Korean  competitors  are  targeting  this  market  segment 
will put significant pressure on ElJ shipbuilding. 

The  6800  TEU  container  ships  ordered  at  Hyundai  Heavy  Industries  represent  a  class  of high-tech 
products which are new to  Korean yards.  The O\vner has in the.past ordered vessels of this  size and 
specification in Europe (and Japan) and for this particular order a European yard competed but failed 
to attract the order as it could not match the price. 

The 3500 TEU container ~hip built at Halla represents a standard product of this yard and  the owner 
has placed all of his container ship orders ·with Halla in the past.  However, the price is extremely low 
and Halla yard seems to benefit from financial advantages that are unavailable to EU competitors (see 
also Annex Il). 

Ill 

The Panamax bulk carrier order at Halla has the same characteristics as the previous case. 

12 

•  The Panamax bulk carrier from Daedong has an offer price that is below the operating costs and well 

below what should be regarded as an economic price. 

•  The product tanker  built at  Daedong  shows  a  smaller gap  between offer and  normal  building  price 
which ·reflects  the  less  fierce  competition  in  this  market  segment  as  compared  to  Panamax  bulk 
carriers.  Nevertheless the  price  offered  is  well  below the  calculated break even price  of 23.7  Mio. 
USD (excluding a profit, but including overheads and debt servicing). 

•  Given the extremely high debts of the Daewoo shipyard (6.7 Bn USD), the calculation of the costs for 
debt servicing has a severe impact on the normal building price as derived from the cost model.  The 
VLCC  order at Daewoo  has  to  carry  a  calculated  contribution to  debt  servicing  of 16.0  Mio.  USD 
which makes the offer underpriced.  Without debt servicing the offer price would cover the total direct 
costs and overheads. 

South Korean financial sector 

The conditions under which shipyards such as Hallaor Daedong operate (for more details see also Annex 
II) merit a closer look to the South Korean banking system in general and to the way in which export and 
operational credits are awarded. 

The Korea Export/Import Insurance Corporation (KEIC) was established by the Government of South 
Korea with the express purpose of guaranteeing risks related to exports borne by all Korean companies. 
This role has been revised and KEIC now guarantees that buyers receive their advance payments back 
in  case  a  company  (in  this  case  a  shipyard)  goes  bankrupt  and  the  bank  that  has  given  the  refund 
guarantee  also  fails  to  cover  the  payment.  This  basically  means  that  buyers  of Korean-produced 
tonnage have their payments guaranteed by the Korean State. 

The Export Import Bank of Korea (KEXIM) which is  fully  owned by the  South Korean  Government 
provides instruments to  exporters to  boost South Korea"'s  exports of capital goods such as ships.  Two 
subject matters  are  of relevance  here:  The  "export  financing  facility"  hands  out loans  to  shipbuilders 
during  their  production  period,  before  the  delivery  of the  ship.  The  "refund  guarantee  facility" 
guarantees the refund of down-payments when shipbuilding contracts are not fulfilled. 

Under  western  European  markets  conditions  these  facilities  could  be  established  with  interest  at 
LIBOR + 2  to  3  percent, depending  on the  shipyard's creditworthiness.  KEXIM provides the  "export 
financing  facility"  with  interest  rate  at  LIBOR  plus  mark-up  2.66%  plus  risk  premium  starting  at 
0.25% depending on the shipyard's creditworthiness and collateral,  and the  "refund guarantee facility" 
with  guarantee  commissions  starting  at  0.4%,  according  to  creditworthiness.  Given  the  high 
indebtedness  of the  South Korean  yards  it  is  clear that  the  rates  offered  by the KEXIM  bank do  not 
.,. 
cover the risk related to these facilities.  For some Halla contracts the costs of KEXIM guarantees are 
reported  to  be  1%  of the  contract  price  because  of the  precarious  situation  of this  yard.  This  is 
considered very low. 

As  92%  of the  total  guarantees  provided  by  KEXIM  were  for  shipyards  in  the  period  of January  to 
November  1998  the  provision  of  export  guarantees  by  KEXIM  can,  at  least  for  this  period,  be 
considered a  sector  specific  operation.  Moreover,  the  fact  that  the  bank  is  state  owned  and  that  the 
state has covered its  losses by means  of capital  injections can be assimilated to  a  sector specific  state 
aid case. 

13 

KEXIM  has  also taken over refund  guarantees  from  weaker commercial  banks.  This  additional  risk  is 
balanced through KEIC  in case  of failure.  As  a result,  buyers of Korean-produced tonnage  can rely  on 
risk coverage through the Korean government, even if non-KEXIM guarantees are used. 

Korea  Exchange  Bank,  the  main  creditor  of  Halla,  is  owned  by  the  Bank. of  Korea  (32.1 %), 
Commerzbank  AG  (Germany's  third  largest  bank,  30.4%)  and  private  investors  (37.5%).  Korea 
Exchange  Bank  has  received  fresh  capital  from  various  investors,  including  Commerzbank  AG  and 
KEXIM.  In addition the state-owned Bank of Korea has made a direct investm.ent of 700 Billion Won 
in KEXIM, to allow it continuing the provision of financial  support to exporters and to raise its capital 
adequacy ratio.  KEXIM in turn invested in the Korea Exchange Bank (thus helping, at least indirectly, 
Halla).  Other Halla creditors are SeoulBank, Industrial Bank of Korea and the Foreign Exchange Bank 
of Korea, all of which are at least partially under public interest.  SeoulBank, which was until recently 
95% state.-owned, has been declared a non-viable lender by the Financial Supervisory Commission and 
is  now entirely  under state  control.  Its bad loans  have  been transferred to  Korea Asset Management 
Corporation, a state agency, and it remains to be seen if the credits to Hall a will be treated according to 
standard commercial terms. 

This closely knit network of financial institutions and the continued government influence in the banking 
sector provides the  ground  for  a possible non-market-oriented  behaviour of the  creditors vis a vis  the 
shipbuilding  industry.  Following  a  Council  request  the  previous  Commissioner  for  Industrial  Affairs 
Martin Bangemann visited  South Korea in May  1999 to  discuss the  issue with the  Korean  Government 
and the  shipbuilding industry.  In response  to  the  Commissioner's oral  and written inquiries,  notably  in 
relation to the possible use of IMF Funds, the South Korean Government replied that such funds are only 
used to bolster currency reserves and noted that they do not follow up on the use of funds once they have 
been disbursed to commercial banks, even if these commercial banks are under public control. 

Given  the  particular  nature  of  shipbuilding  contracts,  and  the  paramount  importance  of  financing 
schemes,  it  seems  crucial  to  gain  more  insight  into  the  issue  of the  financial  funding  of South  Korean 
shipyards. 

Conclusions for Chapter 3 

•  The shipbuilding market monitoring study comtnissioned by the European Commission has provided 
first  tangible  results  (see  above).  The  cost model  employed is  stable  and suited to  analyse the true 
costs of shipbuilding in Korean yards (the only ones investigated so far).: 

•  None  of the  nine  investigated  orders  for  new  vessels  was  clearly  profit  making  and  there  are 
convincing indications that Korean yards offer ships at below cost price;  in some cases prices do  not 
even cover operational costs, let alone the servicing of debts. 

•  Halla,  and  to  a  lesser  extent  Daedong,  exhibit  business  behaviour  which  would  be  considered  as 
unacceptable  in  the  EU.  As  both  yards  are  under  bankruptcy  proceedings  the  financial  context  in 
which these yards operate needs further in-depth scrutiny.  Of particular concern are past and current 
debt  forgiveness  and  debt  moratoria,  as  well  as  advantageous  interest  rates,  fresh  credits  and 
guarantees for new ship construction projects. 

•  The  financial  system  in  South  Korea,  as  far  as  it  is  used  for  the  financing  of  shipyards  and 
shipbuilding projects,  remains opaque and,  as  there  is  substantial  scope for  government intervention 
with  large  parts  of the  banking  sector  being  owned  by  the  state,  interference  in  financial  and 
organisational matters could have occurred.  Credits and guarantees given to shipyards do not follow 
global business practices, and such commercial risk assessment as has been undertaken does not seem 
to follow the laws and logic of a market economy. 

14 

4. 

Conclusions and Recommended Actions 

There can be  no doubt that the market for merchant ships is in crisis.  Although this industrial  sector has 
seen  problems  over  a  long  period  of time,  the  situation  is  becoming  increasingly  critical  as  capacities 
continue  to  grow,  competition  from  low-wage  countries  is  getting  stronger  and  prices  are  nose-diving. 
For certain shiptypes, profits from shipbuilding operations seem· to be almost unachievable.  This process 
has been dramatically accelerated by the Asian crisis. 

At  the  onset  of the  crisis,  Asian  manufacturers  did  not  enjoy  an  immediate  advantage  from  currency 
devaluations.  Instead, the crisis deeply affected Asia's financial  sector and made ship financing  difficult. 
The  emergency  measures  for  the  revitalisation of the  Asian  financial  markets  have  improved  financing 
conditions,  leaving  Asian  yards  with  competitive  advantages  from  ·wage  cuts  and  devalued  local 
currencies. 

It  should,  however,  be  recognised  that  Asian  shipyards,  in  particular  in  South  Korea,  are  strong 
competitors  in  their  own right.  Yard  facilities  are  often  state-of-the-art,  the  work  force  is  skilled  and 
flexible  and the product quality matches shipowners'  demands.  Moreover the local  supplier base is  able 
to provide major equipment at significantly lower prices.  This, however, does not excuse unfair hvsiness 
practices and  price offers that are'below costs.  There are  indications that injury to  competing  EU  yards 
has indeed been caused to  some extent and that Korean yards have received and may continue to  receive 
support under non-market conditions from  state  controlled banks.  This gives rise to  concerns regarding 
possible indirect state support. 

Capacity  cuts  in  the  market  are  necessary  in  order  to  return  to  a  balanced  and  healthy  shipbuilding 
market.  Only then will prices recover to allow shipyards to operate profitably.  Unfortunately the OECD 
agreement  has  not  entered  into  force  and  even  were  this  now  to  be  achieved,  capacities  would  not  be 
immediately  affected  as  the  agreement does  not  address this  issue.  Voluntary  capacity  cuts  by Korean 
yards,  which  are  chiefly  responsible  for  the  increase  in  capacity,  seem  to be  similarly  elusive  as  most 
companies are  regarded as  "too  big to  fail"  and  from  past experience expect the  government to  bail  out 
the industry.  The cases of Halla, Daewoo and Daedong indicate that further investigations on a potential 
indirect bail-out of these yards are necessary. 

Looking at forecasts  for  demand and capacity, a quick improvement in the  situation cannot be expected. 
Answers  to  the  problem  therefore  need  to  be  given  under  various  timeframes,  with  more  in-depth 
investigations on the general market developments being performed in parallel: 

•  Damaging or non-market business practices, in particular on the  part of Kqrean manufacturers,  need 
to  be  stopped as  quickly  as  possible.  It must be  ensured that the  conditions  and  assumptions  under 
which the  I~1F-led rescue package was given to  Korea and to  which the  Korean government agreed, 
are  fully  respected.  The  IMF,  in  the  context  of the  economic  programme  supported  by  the 
stand-by arrangement, can help to  ensure that budgetary subsidies and other possible forms 
of government support are not given  to  ailing shipyards. M~mber States could instruct their 
Executive Directors to stress this point at the IMF Board.  The particular issues that need to  be 
addressed  are:  the  degree  of  state  control  in  each  of the  major  creditors  of  Korean  shipyards, 
especially  in those who  participated  in the debt write-offs and/or moratoria;  the  question  of whether 
the  latter's  actions  are justified  under market  economy  criteria;  the  question  of whether the  Korean 
government's undertaking to the IMF  not to  bail out ailing companies has been fully  respected in the 
cases of Halla, Daewoo and Daedong. 

15 

•  Trade remedies are an important line of action.  Traditional anti-dun1ping or countervailing measures 
are  not  applicable  to  shipbliilding  as  ships  are  not imported and  since  the  OECD  agreement  has  not 
entered  into  force,  there  are  no  direct  instruments  to  combat  injurious  pricing.  However,  in  the 
multilateral disciplines section, the "Agreement on Subsidies and Countervailing Measures"  (ASCM) 
of the  WTO  (which  has  so  far  not  been  applied  to  the  shipbuilding  sector)  provides  a  dispute 
settlement mechanism that can be en1ployed against subsidies granted by a WTO men1ber and causing 
adverse  effects  to  the  interests  of  other  WTO  members.  The  ASCM  currently  establishes  a 
presumption  of serious  prejudice  when  it  is  den1onstrated  that  subsidies  of s<Yo  ad  valorem,  or 
Information  recently 
subsidies  to  cover  operating  losses  and  direct  forgiveness  of debts  exist. 
collected  appears,  for  the  first  tin1e,  to  contain  some  initial  i~dication that  the  debt  forgiveness 
arrangements  from  which  at  least  one  Korean  shipyard  has  benefited  might  constitute  a  subsidy 
within the definition of the ASCM.  However, given the very strict conditions which have to  be 1net 
under the Agreen1ent, such infonnation is clearly insufficient for WTO action to be ]aunched at this 
stage.  If elaborated and  structured  in the  appropriate way,  the  information  collected  could  form 
the  basis  for  the  preparation  and  lodging  of  a  Trade  Barriers  Regulation  complaint  by 
industry.  This 'would  give  rise  to  an  examination  procedure  during which  the  Commission 
would  thoroughly  investigate  all  factual  and  legal  aspects  of  the  prima  facie  evidence 
submitted and collect additional  information to  substantiate an action which would meet the  \VTO 
standards  and :vvould  have  a  chance  to  be  successful.  The  appropriateness  of resorting  to  a  \VTO 
action  would  then  be  assessed  on  the  basis  of the  Commission's  investigation  report. 
In  that 
context it is worth noting that Korea or any  otht~r WTO n1ember could also challet1ge  the  EU  state 
aid  regime. on  the  basis  of the  1nultilateral  disciplines  section  of the  ASCM,  provided  it  can  be 
established that adverse effects have occurred on the side of the cornplaining party. 

•  To support the  above  approach rnore  information  is  urgently required on the  financial  structures and 
instruments employed in Korea in  general.  T'his  includes. the re]ationships  between banks  and  other 
financial  institutions  active  in  shipbuilding,  the  principles  under  which  credits  and  guarantees  are 
awarded,  and  the  probability  of debt  repaytnents  under  normal  n1arket  conditions.  The European 
Comtnission  through  its  continued  monitoring  efforts  will,  in  co-operation  'vith  industry, 
continue to examine allegations of subsidisation through such activities and present its findings 
to the Council. 

•  For  the  future  the  conclusion  of an  agree1nent  establishing  a  level  playing  field  in  the  sector 
should  be  pursued.  It should  include  as  many  players  as  possible,  at  least  the  important  and  the 
etnerging shipbuilding countries, and cover all irnportant issues that need to  be addressed to establish 
a healthy shipbuilding enviromnent in the Jong rurL  Working Party 6 of OECD, during its last session 
in June  1999,  agreed to  aim at in1proved  transparency  in  the  sector by  intensifying work on supply 
and  demand  and  by  providing  govenunents  and  industry  with  information  and  analysis  of the 
market conditions, especially in relation to the supply side.  This will  encompass the production of 
cotnmon forecasts  on supp]y and demand to  be updated annually, and the creation of a database on 
prices  of vessels.  In addition to  the  transparency  exercise  on recent policy developments  this  will 
provide  a  forum  to  exchange  views  on  capacity  and  potential  price  problems.  Member  States 
should give maxintum support to this approach.  Notwithstanding the clear difficulties of putting a 
global shipbuilding agreexnent in place in the near fi1ture,  efforts 1nust continue in this direction. 

Maritime business  is  a global  one  by its  very nature,  and  the  shipuuilding  mark~t has  become subject to 
globalisation  earlier  and  to  a  greater  extent  than  other  capital  goods  markets.  The  distortions  resulting 
fron1  different  business  cultures  and  practices,  including  the  level  of state  intervention  and  the  altitude 
towards  such intervention,  should not he  accepted as  an unavoidable side effect of globalisation.  Rather 
these  distortions  need  to  be  addressed  proactively  bef:ore  the  n1arket  balance  is  finally  and  irreversibly 
destroyed. 

16 

5. 

List of Tables and Graphs 

'Fig.  1 
Completed ships 1985-1998, supply and demand forecasts by A WES/SAJ and KSA 

Fig. 2 
Capacities for new ship production in Japan, Korea and the EU in cgt,  1988-1997 

Table 1 
Evolution of prices for newly built ships (in Millions of US Dollars) 

Table 2 
Evolution of prices for newly built ships (annual changes in percent) 

Fig. 3 
World market shares by country/region,  1997, 1998 and 1st half of 1999 

Fig. 4 
World market shares by shiptype, 1998 

page2 

page 3 

page4 

page4 

page 5 

-page 6 

Fig. 5 
Market shares of Japan, South Korea and the EU in container vessels (orders, based on cgt), 
1997, ·1998 and first half of 1999 

page 7 

Table 3 
Comparison o'f order prices and calculated building prices for selected ships 

page 11 

Fig. 6 
Development of Halla's shipbuilding output ( cgt),  1990-1999 

Fig.  7 
Development of Daedong's shipbuilding output ( cgt),  1990-1999 

Fig.  8 
Development of DHI's shipbuilding output ( cgt),  1990-1999 

Annex 11, page I 

Annex 11,  page Ill 

Annex 11,  page IV 

17 

6. 

References 

Council Regulation (EC) No 1540/98 of 29 June 1998 
Official Journal L 202, 18/07/1998 p.  0001- 0010 

Communication from the Commission to the Council, the European Parliament, the Economic and Social 
Committee and the Committee of the Regions - "Towards a new shipbuilding policy" 
COM/97/0470 final 
http://europa.eu.int/comm/dg03/directs/dg3d/d5/shipen.htm 

The OECD "Agreement Respecting Normal Competitive Conditions in the Commercial Shipbuilding and 
Repair Industry", 21  December 1994 
http://www.oecd.org//dstilsti/industry/ship/act/WP4.HTM 

First Marine International, Shipbuilding Market Monitoring 
Reports for the Eur~pean Commission (not published): 

Monthly market reports (April, May, June, July, August 1999) 
Background cost information reports I and 11 
Cost evaluation reports I, 11  and Ill 
Mid-term report 

18 

Annex I 

Details of cost model used 

The  cost model  employed for  the  shipbuilding  rnarket 1nonitoring study  (see  chapter 3)  distinguishes 
between the following iterns: 
•  Material  costs  (steel,  engine  and  propulsion  systern,  auxiliary  engines,  automation  and  control 

equipment, cargo handling and cargo treatment equiptnent, specialised equipment, etc.); 

•  Labour  costs  (engineering,  adm.inistration,  rnanagen1ent  and  production)  both  in-house  and 

concerning sub-contractors; 

•  Financing costs including guarantees:. etco; 
. •  Other direct costs such as classification costs, risk insurance, ·warranty reserve, commissions, etc .. 

The estimate of material and equiptnent costs in the  cost n1odel  is  based on an estimate of costs within 
the  EU,  and  applying  a  variation  factor  which  takes  account  of the  fact  that  material  and  equipment 
prices  are  lower for  Asian  con1petitors.  This  has  been  accornplished  by  undertaking  a  survey  of over 
I 00 equipment n1anufacturers within Europe who are cornpeting against domestic suppliers in Asia for 
contracts in Asian yards. In each of the categories the prices offered by South Korean manufacturers to 
domestic buyers were found  to  be approximately 25<Yo  lower than the equivalent price in the European 
industry. This competitive advantage is taken into consideration in the model. 

The analysis of wages is based on officially published  statistics.  In the  case  of South Korea there  has 
been much talk of wage  cuts  since  the  econotnic crisis.  The cost model  evaluates the  actual  extent of 
this  fall  in  wages.  The  conclusions  draw11  fron1  this  analysis  are  that  whilst there  was,  as  expected,  a 
decrease in wages in  1998 over 1997, following  the econotnic difficulties, the decrease was fairly  low 
and  was  certainly  lower  than  press  repo11s  of 50o/o  wage  cuts  (and  more)  have  suggested.  It also 
appears from the statistics analysed that there has been little resolve to maintain lower wages, with the 
recovery in earnings heralded by the very  large bonus payment at the  end of 1998, following  a year of 
restraint.  Further analysis has been carried  out to  take into  account the effect of exchange rate changes 
on  the  level  of earnings  expressed  in  lJS  Dollars.  Dollar  equivalent  earnings  fell  by  almost  50% 
between October 1997 and February  1998 but have been rising since that time. Taking into account the 
average over the period February to Decen1ber, dollar denmninated earnings fell  by 34% between 1997 
and 1998. The average for first quat1er  1999 was around 20% below the same period in 1997. 

Assumptions on total ·working hours arc· also based on official statistics, complemented with a specific 
adaptation  of the  figures  to  the  shipbuilding  industry.  The  same  approach  is  used  to  evaluate  the 
overall  productivity  of  Asian  shipyards,  taking  industrial  productivity  in  general  as  a  basis  and 
adapting it to the specific situation of each yard under investigation.  Produc~ivity is expressed as man 
hours needed to produce one cgt at the facility in questioh. 

Direct  financing  costs  included  are  those  for  the  working  capital  for  the  contract  and  those  for  the 
repayment  guarantees.  The  contribution  that  each  order  has  to  make  to  the  debt  servicing  of the 
building yard (if there are debts to.  be serviced) is  included under indirect costs.  However, \vhere yards 
received debt forgiveness, these debts are no longer considered. 

For each selected order the  items  n1entioned  above  are  specified and  complemented with assumptions 
on  indirect  costs  such  as  overhc~ad, yard-specific  an1~rtisation of shipbuilding  equipment  and  profit 
margin.  It  is  obvious  that  rnany  elen1ents  in  the  cost  rnodel  can  only  be  specified  through  in-depth 
knowledge of the particular ship on order and the building yard.  The analyses are continuously updated 
as soon as additional inforrnation becomes available. 

Annex II 

Details of investigated shipyards 
A.  Case of Halla shipyard 

Shipbuilding  operations  at  Halla  were  transferred  from  the  original  site  in  Inchon  to  a  purpose-built 
new facility  in Mokpo,  known as  Samho, in  1996.  The new Samho shipbuilding facility,  operated  by 
Hall a  I-Ieavy  Engineering (HHE) boosted the capacity of the shipyard by around four titnes~ and Hall a 
now ra.r1ks  the  5th largest shipbuilder in the world.  The average output from  Samho in the three  years 
since  it  becarne  fully ·operational  (operations  commenced  in  1996)  has  been  430.546  cgt  (including 
expected output in  1999). The output from Halla (including Inchon and Samho) in terms of cgt by year 
is illustrated in the following chart. 

Fig  6 
De1, elopment qf J-Jalla's  shipbuilding output (cgt),  1990-1999 

500.000  -~-------------------, 
450.000  - ----- -----·---- --------------·-----------·-
400.000 

350.000 

300.000 

250.000 

:200.000  - ------------· 
150.000 

1 00.000  . ------ :::;;;;;;;;iiiliiiiiiiii--~ 
)0.000- ----- ··----~-----------------------~ 

()  -~~--~--~--~--~----~--~--~~ 

1990  1991  1992  1993  1994  1995  1996  1997  1998  1999  2000 

The boost in output following the hand-over from Inchon to Samho in 1996 is clearly visible from this 
chart.  The yard has  been troubled since its opening,  suffering from  problems of design of the  facility, 
and  from  its  location  on  the  East  Coast  of the  country,  away  from  the  main  areas  of shipbuilding 
ernployn1ent  at  Ulsan and  Busan.  Soon after becoming  operational  it was  clear that the  design  of the 
yard was inadequate to achieve the steel throughput needed to meet the capacity target.  The inadequate 
design of the  facility  leads  to  performance penalties  \vhich  are  further  increased  by the dated  systems 
installed  in  the  yard  to  support  production.  Performance  also  suffers  because  of the  location  of the 
shipyard.  Higher wages than paid by other shipbuilders have had to be offered to attract workers to the 
region,  and  the  quality  of workers  employed  is  not  thought  to  be  as  high as  found  in  other  main 
shipyards in South Korea. 

In  December  1 997,  South Korea sustained one of its largest corporate failures  with the collapse of the 
Halla  Group.  Halla has  since survived with intensive financial  restructuring.  This has included one  of 
the  rnost  itnportant  component  parts  of  the  group,  the  shipbuilding  subsidiary  HHE.  Despite 
bankruptcy the shipyard is still  operating with the support of its  cr~ditors (with Korea Exchange Bank 
as  the  1nain  creditor).  Support  has  taken  two  pritnary  forms,  debt  forgiveness  and  bridging  finance 
fi·orn  the international finance markets. 

HHE  has  been  generating  a  net  loss  in  1996,  1997  and  1998  (the  period  after  Inchon  closed  and 
operations  were  rnoved  to  Samho ).  The  shipyard  has  failed  to  make  even  an  operating  profit.  The 
accounts  indicate that  Halla has  been pricing contracts  at a  level  which  does  not cover direct  cost  of 

sales,  let  alone  contribute to  selling  and  administrative  expenses  and  other costs,  notably  the  cost  of 
financing  the  new facility.  The  level  of these  operating  losses  is  very  high,  at  17,5% of sales  in  1997 
and  29,5%  of sales  in  1998.  This  strongly  suggests  that  the  level  of pricing  was  very  significantly 
below costs and that the company has a very fundamental problem in operational terms. 

Since  December  1997 HHE  has  been under  court management,  a form  of official receivership.  It has 
continued to compete for shipbuilding work in the international markets. Various reported shipbuilding 
contracts at extremely low prices have aroused a hostile reaction from competitors on the. grounds that 
the  company  has  received  illegal  finance.  These  contract  prices  are  well  below  the  international 
average,  and  based on the  trading  history  of the  company there  is  a  very  legitimate  concern  that  the 
company  may  be  continuing  to  take  orders  at  a  loss-making  level,  in  the face  of an  urgent  need for 
orders to utilise capacity from next year onwards. 

In November  1998,  Halla announced that the  creditors  of HHE had agreed to  write-off up  to  52%  of 
the  company's  collateralised  debt  and  78%  of unsecured  debt.  In  addition,  interest  charges  were 
waived  from  much  of the  remaining  debt.  The  debt  reduction  amounted  to  978  Billion  Won  (742 
Million US  Dollars). The overall debt amounted to  3,6 Trillion Won at the time.  Most of the financial 
creditors of HHE  were  major domestic  banks  in  South Korea who  collectively had  sourced  funds  on 
the international markets for economic stabilisation. 

The  rescue package for  HHE has  caused considerable controversy not only because of the  size  of the 
funding  required,  but  also  because  many  of  the  company's  debt  problems  originate  from  the 
construction cost of the  new facilities  in the  early  1990s.  Further concern has  been expressed  on the 
continuation of KEXIM  ~ank to  offer guarantees to  Halla which is  in effect bankrupt,  and which in a 
normal commercial sense would not be available. KEXIM argues that it charges a premium to take this 
into  account,  although  it  is  unlikely  that  a  company  such  as  Halla  would  be  able  to  attract  such 
guarantees in a purely commercial situation. 

Due to the serious problems at Halla all efforts to  sell the yard have so  far  failed.  Hyundai which was 
rumoured to  be interested in the yard has frequently denied this, but seems now to have agreed to take 
over Halla's management and send  150 top executives to help in the· reorganisation of the yard.  At the 
same  time  another  debt  moratorium  has  allegedly  been  agreed.  Given  the  prominent  role  that  state 
controlled banks  play  with regard to  Halla,  providing  finance  and participating  in the  debt  write-offs 
and moratoria, these developments require further scrutiny, as far as possible government intervention 
is concerned. 

As  the  cases of Daedong  and  Daewoo  show  a  similar patterns  as  Halla  a  few  words  need  to  be  said 
about these two shipyards. 

· 

Case of Daedong Shipbuilding Co. 

B. 
Daedong  Shipbuilding  Co  Ltd  is  a  private  limited  company,  registered  in  South  Korea  in  1967. 
Daedong  is  solely  involved  in  shipbuilding.  Its  main  construction site  moved  from  Pusan  to  a  brand 
new shipyard at Chinhae, 40 miles down the coast from Pusan, in 1996. As of February 1997, Daedong 
has . been  operating  under  a  court  protection  plan.  Daedong  is  currently  trading  under  a  corporate 
reorganisation  package  approved  by  the  courts.  Between  February  and  October  1997  the  company 
operated  under the  direction  of a  court-appointed  receiver,  who  put  together  a  restructuring  package 
which  aims  to  enable  Daedong  to  pay  back  creditors  over  an  agreed  period  of time  and  the  yard  to 
carry on trading.  This plan was accepted by the courts in October 1 ?97, and permitted the company to 
continue operating in receivership.  The company's main creditors finally  approved the rescheduling of 

11 

9  ( 

the  debt in August  1998  (Daedong's total  debts  are  ea.  204  Mio.  USD).  Under the reorganisation plan 
Daedong has agreed to repay its debts over a period of 14 years (1998-20 12) at an interest rate of 7% to 
8%, and it has been granted a moratorium on repayments until2003. Until then, the company will have 
to  pay  interest  on its  debts,  but  will  not  be  required  to  repay  any  of the  principal.  Although  Korea 
emphasises that the rescue measures for Daedong were taken by independent private creditors , it is at 
least questionable whether these measures are compatible with the market oriented practices Korea has 
committed itself to in the context of the IMF reform programme. 

Daedong's  original  shipyard  in  Pusan  specialised  in  the  construction  of chemical  tankers,  product 
tankers and mini-bulkers up to  10.000 tonnes  deadweight.  Daedong's new yard opened in June  1996, 
and the new· capacity effectively replaced the existing capacity at the Pusan yard. 

Output from the two yards since 1990 is presented in the following graph. 

},ig.  7 
Development of Daedong's shipbuilding output (cgt),  1990-1999 

350.000 

300.000  -

250.000 

200.000 

150.000 

100.000 

50.000 

E-
0 
u 

~  ~ w  ~  ~  ~  ~  ~  ~  ~ 

~  ~  ~  ~  ~  ~  ~  ~  ~  ~ 

Year 

The  boost in capacity following  the  opening  of the  new yard  in  1997  is  clear from  this  chart.  Output 
has  increased  from  a  steady  level  of around  50.000  cgt  per  annum  in  t?e  old  yard  to  in  excess  of 
300.000 cgt on order for delivery in 2000. 

After  all  the  problems  encountered  during  1997  Daedong  achieved  relatively  strong  results  in  1998. 
Sales were increased by 32o/o,  while  direct  costs  were  better controlled and _rose  less steeply,  to  allow 
gross  profits  to  be  doubled.  The  company's  1997/1998  balance  sheet  shows  that,  although  the  long 
term debt total was virtually doubled, the  short-term debt was sharply reduced. It should be noted that 
Korean interest rates fluctuated greatly during the course of 1998 with a fall  in commercial paper rates 
from 23% in the first quarter to  8% in the last quarter.  These movements are likely to have contributed 
to  the  reduction  in  interest  charges  for  the  year.  However,  a  Daedong  management  spokesman  has 
indicated  that  when  the  banks  approved  the  debt  rescheduling  in  August  1998,  they  reduced  their 
interest  rates.  If this  is  the  case,  it  raises  the  question  why  banks  have  abandoned  market-oriented 
lending practices. 

Ill 

Case of Daewoo Heavy Industries 

C. 
The  Daewoo Group is one of Korea's top  5 conglomerates or chaebol.  It is  active  in a wide  range  of 
business sectors,  including  electronics,  shipbuilding,  automotive,  construction,  trading  and  financial 
services. The group is headed by the publicly quoted Daewoo Corporation, which was formed  in  1967 
by  its  current  Chairman,  Mr  Kim  W oo-choong.  Apart  from  its  role  as  parent  company,  Daewoo 
Corporation manages the group's construction and trading activities. 

As  part  of  the  general  Korean  government  attempt  to  induce  a  reorganisation  of  the  chaebols' 
businesses, Daewoo is currently in the midst of a major divestment programme aimed at selling 31  of 
its  41  group  companies  by  early  2000.  The  chaebols  seem  to  be  responding  to  the  enforced  change 
with  varying  degrees  of  enthusiasm  and  most  are  reluctant  to  sell  off  profitable  businesses. 
Nevertheless,  Daewoo's  own  programme  has  been  given  a  much  greater  urgency  as  it  has  become 
increasingly  clear  that  the  group  is  teetering  on the  edge  of bankruptcy.  The  Korean  government  is 
acutely aware that it cannot afford a failure  on this scale for  the  sake  of the economy as  a whole.  The 
short-term  debt was  originally  due  for  repayment  at  the  end  of July  but it has been reported that the 
bankers  have  agreed  to  roll  over the  debt  for  another  six  months.  The  new  funds  will  replace  debts 
called in by creditors in the last couple of months.  At the same time, the creditor banks will be able to 
dispose of the collateral in any way they see fit  if the  group does not  keep to  its restructuring targets. 
The Korean government has commissioned Arthur Andersen to  oversee the restructuring in an attempt 
to show that the plan will be executed fairly. 

In  addition  to  the  group  reorganisation,  Daewoo  Heavy  Industries  (DHI)  under  which  the  shipyard 
operates, is itself restructuring.  It is reported that it is selling off various business units and real estate, 
and the sale of its car divi~ion to  Daewoo Motor was the key to  it being able to  increase its net profits 
in 1998. DHI is regarded as fundamentally one of the most profitable parts of the group. DHI has in the 
meantime  come  under  control  of local  banks,  but  the  question  of collaterals  is  still  being  discussed. 
The shipbuilding division of DHI  operates two  shipyards:  the  Okpo  Shipyard in South Korea and the 
Mangalia Shipyard in Romania. The Okpo yard is active not only in shipbuilding but also in repair and 
conversion, and production of offshore platforms, drilling rigs and industrial plants. The Mangalia yard 
specialises in repairs and conversions. Output since  1990 is presented in the following chart. 

Fig.  8 
Development of DHI's shipbuilding output (cgt),  1990-1999 

1.200.000 

1.000.000 

800.000 

600.000 

400.000 

200.000 

E-
0 
u 

~  ~  ~  ~  ~  ~  b 

,o,"'  ~0,  ,o,o, 

,o,o,  ~0,  ,o,Oj  ~0,  ,o,o, 

,o,Oj 

~  ~  A 

,o,Oj 

Year 

The latest accounts of DHI to be published are for the year ended 31  December 1998.  Whilst improved 
pre-tax  and  net  profits  might  suggest  a  steady  improvement  in  the  company's  performance  during 

IV 

1998,  a closer inspection reveals  that this  is  too  simplistic an interpretation.  Despite an  11 o/o  climb  in 
sales, this was outstripped by the increases in both direct sales costs and overhead costs,  resulting  in a 
decrease in profits at gross and operating levels. 

There is little hard information available regarding DHI's specific debt repayment plans.  As stated, the 
company's gearing at the end of 1998 can be considered quite healthy when compared with the current 
average  for  Korean ·shipyards.  Nevertheless,  much of the Daewoo  group's future  appears  uncertain at 
present and there are disturbing reports that the Financial Supervisory Commission of South Korea has 
decided  to  soften  the  rules  for  Daewoo's  domestic  creditor  banks,  basically  exempting  them  from 
domestic  regulations  gov~ming lending  practices  and  allowing  them  to  add  non-performing  loans 
during Daewoo's restructuring process. 

Annex Ill 

Data for Fig. 1: Completed ships 1985-1998, supply and demand forecasts by 

A WES/SAJ and KSA, in Mio. cgt 

Year 
Completed ships 1985-1998 
Demand forecast AWES/SAJ 1999-2010 
Demand forecast KSA 2001-2005 
Supply forecast AWES/SAJ 2000-2005 
Supply forecast KSA 2000-2005 

Year (cont.) 
Completed ships 1985-1998 
Demand forecast AWES/SAJ 1999-2010 
Demand forecast KSA 2001-2005 
Supply forecast AWES/SAJ 2000-2005 
Supply forecast KSA 2000-2005 

Year (cont.) 
Completed ships 1985-1998 
Demand forecast AWES/SAJ 1999-2010 
Demand forecast KSA 2001-2005* 
Supply forecast AWES/SAJ 2000-2005 
Supply forecast KSA 2000-2005* 

Year (cont.) 
Completed ships 1985-1998 
Demand forecast AWES/SAJ 1999-2010 
Demand forecast KSA 2001-2005* 
Supply forecast AWES/SAJ 2000-2005 
Supply forecast KSA 2000-2005* 

1985  1986  1987 
14,20  12,10 
9,20 

1988 
8,50 

1989  1990 
9,30  11,50 

1994 
1992  1993 
1991 
11,40  12,10  12,40  12,50 

1995  1996 
14,40  16,70 

1997  1998  1999 
16,90  18,00 

2000 

2001 

2002 

15,60  15,60 

21,14 
16,79 

15,60  15,60 
16,80  16,80 
21,66  22,18 
17,08  17,38 

2003 

2004  2005 

2006 

2007 

2008 

15,60  15,60  16,49  ·17,38 
16,80  16,80  16,80 
22,69  23,21  23,73 
17,68  17,98  18,27 

17,38  17,38 

2009 

2010 

Year (cont.) 
Completed ships 1985-1998 
Demand forecast AWES/SAJ 1999-2010 
Demand forecast KSA 2001-2005 
Supply forecast AWES/SAJ 2000-2005 
Supply forecast KSA 2000-2005 
* Due to lack of cgt data the KSA forecasts were re-calculated from completed gross tonnes applying a conversion factor. 
(1  gt = 1,6 cgt) 

17,38  17,38 

Source: OECD and European Commission 

V 

\'JL 

Data for Fig. 2:  Construction capacities in Japan, Korea and the EU, cgt * 103 

Year  1988  1989  1990  1991  1992  1993  1994  1995  1996  1997 
EU  4400  3684  3783  3311  3489  3264  3285  3168  3168  3168 
JAPAN  5600  5600  5600  5600  5600  5600  5600  5600  5600  5600 
5. KOREA**  1671  1633  1821  1841  2648  2437  2270  3619  4307  4648 
* * Due to lack of cgt data the figures for South Korea were calculated from completed gross tonnes, using OECD data 

and applying conversion factors that reflect the evolution in the product mix of Korean yards. 
(1988-199I:  I gt= I,9cgt; 1992-1994:  I gt= 1,8cgt; 1995-1997:1  gt= 1,7cgt) 

Source:  OECD, Lloyd's Register of Shipping and European Commission 

N.B.: Figures are based on national statistics using partly different defmitions. 

Data for Fig. 3: World market shares by country/region, 1997, 1998 and 1st half of 1999, 

cgt and percent, orders 

1997 

cgt*103 

EU 
REST OF AWES 
JAPAN 
SOUTH  KOREA 
USA 
OTHER 
GRAND TOTAL 
Source:  Lloyd's Register of Shipping and European Commission 

2950,4 
473,1 
7930,4 
6115,9 
331,4 
3133,8 
20935,0. 

share in °/o 
14,09°/o 
2,26o/o 
37,88%) 
29,21%) 
1,58°/o 
14,97°/o 
100,00o/o 

1998 

cgt*103 

4513,3 
725,7 
5741,8 
4486,8 
345,6 
2545,8 
18359,0 

share in% 
24,58%) 
3,95o/o 
31,28o/o 
24,44% 
1,88o/o 
13,87°/o 
1 OO,OOo/o 

1. half 1999 
cgt*10 3 

1346,3 
332,5 
2228,5 
2272,4 
324,3 
1356,2 
7860,2 

share in °/o 
17,13°/o 
4,23°/o 
28,35o/o 
28,91 o/o 
4,13°/o 
17,25o/o 
1 OO,OOo/o 

Additional data: World market shares by country/region, 1997, 1998 and 1st half of 1999, 

cgt and percent, completed 

1997 

cgt*103 

1998 

cgt*10 3 

EU 
REST OF AWES 
JAPAN 
SOUTH  KOREA 
USA 
OTHER 
GRAND TOTAL 
Source:  Lloyd's Register of Shipping and European Commission 

3585;7 
881,4 
6834,4 
3656,2 
360,4 
2686,0 
1 00,00°/o  •  18004,1 

3246,4 
784,2 
6294,9 
4053,3 
129,0 
2501,5 
17009,3 

share in °/o 
19,09o/o 
4,61 °/o 
37,01o/o 
23,83o/o 
0,76o/o 
14,71 °/o 

share in% 
19,92% 
4,90o/o 
37,96% 
-20,31 °/o 
2,00% 
14,92%> 
100,00% 

1. half 1999 
cgt*10 3 

1345,2 
365,6 
3363,3 
2426,9 
157,3 
1202,9 
8861,2 

share in% 
15,18o/o 
4,13°/o 
37,96o/o 
27,39% 
1 :78°/o 
13,57°/o 
1 OO,OOo/o 

Data for Fig. 4: World market shares by shiptype, 1998, cgt and percent 

(orders) 

cgt*103 

share in °/o 

CRUDE OIL TANKERS 
PRODUCT AND CHEMICAL CARRIERS 
BULK CARRIERS 
GENERAL CARGO SHIPS 
FULL CONTAINER HIGH SPEED LINER 
Ro-Ro VESSELS 
CAR CARRIERS 
GAS CARRIERS 
FERRIES 
PASSENGER SHIPS 
FISHING VESSELS 
OTHER NON CARGO VESSELS 
OTHER VESSELS 
GRAND TOTAL 
Source: Lloyd's Register of Shipping and European Commission 

2688,7 
1646,7 
2548,3 
1969,9 
3163,4 
441,4 
780,2 
637,8 
553,2 
1632,2 
336,2 
1692,7 
268,3 
18359 

14,65% 
8,97o/o 
13,88% 
1 0,73o/o 
17,23o/o 
2,40°/o 
4,25% 
3,47% 
3,01 o/o 
8,89% 
1 ,83o/o 
9,22o/o 
1,46°/o 
1 OO,OOo/o 

2 

C)/ 

Data for Fig. 5: Market shares of Japan, South Korea and the EU in container vessels 
(orders, based on cgt), 1997, 1998 and first half of 1999 

1997 

1998 

1st half of 1999 

EU 
23,92°/o 
485,2 
581,8 
SOUTH KOREA 
15, 14o/o  1395,1 
368,3 
JAPAN 
672,7 
44,62o/o 
1085,2 
OTHERS 
610,4 
397,0 
16,32°/o 
WORLD TOTAL  2432,3 
100o/o  3163,4 
Source: Lloyd's Register of Shipping and European Commission 

cgt*103  share in °/o  cgt*103  share in%  cgt*10 3  share in% 
14,63o/o 
68,25o/o 
8,83°/o 
8,29% 
100o/o 

164,0 
765,1 
99,0 
92,9 
100°/o  1121,0 

15,34% 
44,1 oo/o 
21,27% 
19,29% 

3