S.Korea's shipyards get OK from shipping companies to delay vessel delivery

South Korean shipbuilders are breathing a sigh of relief despite the postponed delivery of their container ships due to a chronic shortage of domestic labor. 

Shipping company clients are accepting the delays due to the sharp drop in a major index for ocean freight and not charging liquidated damages (LD).

Industry sources on Sunday said select shipping companies are discussing delays in container vessel delivery with three domestic shipbuilders: HD Korea Shipbuilding & Offshore Engineering, Hanwha Ocean Co. and Samsung Heavy Industries. 

Global shipping companies such as Evergreen Marine of Taiwan are discussing the problem with South Korean shipbuilders, said Tradewinds, a Norway-based shipbuilding and shipping media outlet, adding that certain shipping companies agreed on a delay of three months while others are negotiating postponement for up to a year.

The labor shortage in domestic shipbuilding is seen to reach 13,000 personnel in the third quarter, a factor expected to delay delivery of vessels.

Global shipping companies, who hold the keys to the industry, can claim LD from shipbuilders if the latter fail to meet scheduled delivery. Depending on contract, the compensation can reach from tens to hundreds of billions of won. Failure to meet the initial deadline could lead to a series of delays, a phenomenon shipbuilders consider a major risk.

Industry insiders, however, say the recent atmosphere surrounding this problem has changed as the Shanghai Containerized Freight Index (SCFI), the world's leading global indicator of its kind, fell below the break-even point of 1,000. This means that even if a container ship is delivered for immediate use, it cannot earn a profit.

The SCFI fell 4.6% from the previous week to 934.31 on Friday, fluctuating between 900 and 1,100 since January.

The index for new shipbuilding orders rises every month, another reason delayed delivery is a major setback for shipping companies. A client who places another order after receiving LD can thus expect a higher sale price.

Clarkson Research Services, a London-based global shipbuilding and shipping analysis company, said the price of a new container vessel last month was $222.5 million (280 billion won), far above the quote of $145 million in May 2020.

Write to Hyung-Kyu Kim at khk@hankyung.com