BIGGER WILL ONLY BE BETTER FOR SOME

BIGGER WILL ONLY BE BETTER FOR SOME

In my blog on 12 February 2019 I referred to reports that Hyundai Heavy Industries (HHI) has signed a preliminary deal to take over rival shipyard Daewoo Shipbuilding & Marine Engineering.  Once finalised the acquisition would merge Korea’s two biggest naval shipyards, with estimated combined defence-related revenues of nearly USD2 billion.

I said I was of the opinion that it was good news, assuming the alternative would be the eventual demise of DSME.  The initial assessment period was to be 6 months from the end of January 2019 and one problem could be that DSME is government owned and the ‘takeover’ may not be blessed by the South Korean Government.  I was sure there would be a host of other concerns raised before finalisation but whatever the outcome, I hoped the DSME facility continued to produce impressive numbers of significant ships as it has done in the past.

Apparently the deal will be completed when the world’s two largest shipbuilders get approval from antitrust watchdogs in Japan, China, Kazakhstan and the European Union, which is not going to be an easy task.  The authorities will review whether the possible merger of the two major shipbuilders may reshape the global shipbuilding landscape with their dominant market position. If any antitrust regulator refuses to approve the request, the merger is likely to flounder.

Additionally, in getting the approval, DSME workers are becoming an obstacle and many HHI workers are not happy either.  Recently, the DSME union members visited the European Union’s competition commission in Brussels, Belgium. They met with commission officials to urge the institution to disallow the tie-up, citing the case of Siemens and Alstom. In February 2019, the merger of the German and French firms had been rejected by the commission on the grounds that it would create an undisputed market leader, reduce competition and disadvantage customers.

The Korean workers’ visit to the EU commission is bad news to HHI as the region is already not favourable to the merger. In Europe, the two shipbuilders’ key clients are concentrated. When the two are merged, European clients may have a weaker price bargaining power as the shipbuilders will no longer compete for price.

Barry Luthwaite referred to it in his editorial fronting the BRL Weekly Newsletter No. 51 of 2019 saying, ‘the EU has lodged a complaint over the merger on the grounds that it hits fair competition’.  He added, ‘and objections from within Japan could delay this merger until later in 2020 but it is inevitable that it will go through.’

Further comments from Barry on the subject included, ‘Full order books do not necessarily mean profits.  Some builders are desperate to trim costs.  Mergers and takeovers reduce owner choice.’  He mentioned the recent merger of Chinese state run giants China State Shipbuilding Corporation and China Shipbuilding Industry Corporation, creating the world’s largest shipbuilder and also an arrangement between Japanese yards Japan Marine United and Imabari Shipbuilding that will end in a merger.

Barry concluded, ‘The whole newbuilding scene is changing fast.  If costs are cut with mergers, owners will hope prices will come down but do not bank on it.’  Information about BRL Shipping Consultants is at www.brldata.com/.

From Solar Solve’s aspect, it won’t make any real difference whether yards merge or not, as long as they continue to build surface vessels and the global marine industry remains buoyant and profitable for those who operate and work in it.

JHL MBE SSL Co. Chairman