Daewoo Shipbuilding & Marine Engineering said on Friday it had lost an order from a European customer worth over half a billion dollars in a sign of worsening conditions in the seaborne sector and a growing euro zone lending squeeze.
It was the first cancellation this year for Daewoo, one of South Korea's top shipbuilders. The company said the deal was valued at 589.3 billion Korean won ($520.8 million).
An industry source said the pulled order was from a Greek ship owner.
Daewoo said in a regulatory filing the order for two very large crude carrier (VLCC) oil tankers and two bulk carriers, placed in 2008 at the height of a shipping boom, was cancelled because its client failed to make a payment.
"The cancellation is illustrative of how tough things are. No banks will lend the money and unless you (a ship owner) have a very deep pocket, you will find your cash reserves from the good market drained by this very poor market," a ship industry source said.
A glut of ships ordered when times were good have continued to hit the water this year, outpacing demand for commodities such as iron ore and coal in the dry bulk sector and crude oil in the tanker market, battering ship owner earnings.
Global economic turmoil and tighter bank financing have compounded the growing earnings pain for ship owners.
"In the past couple of years it (the freight market slump) has been eating away at shipowners' large treasure chest accumulated during the boom years," said George Lazaridis, head of research with Greek ship broker Intermodal.
"No European bank at the moment is in a position to support any new clients. Most of the shipping companies now need to keep their cash flow healthy at least until the worst of the freight storm passes."
South Korea is home to the world's biggest shipbuilders including Daewoo and Hyundai Heavy Industries.
The Seoul stock market's shipbuilding subindex has slumped 40% over the past six months versus a 10% drop in the overall market.
FINANCING SQUEEZE
Shipping sources said Greek companies, which include many private owners, have found funding tougher as leading shipping banks such as Germany's HSH Nordbank and the UK's Royal Bank of Scotland look to scale back exposure to the sector.
The loss in value of investments, including real estate and stocks inside Greece, was also seen likely to be hurting some Greek owners.
"It's partly the general squeeze on finance and particularly those two banks and their role in the Greek market that are posing problems for the Greek shipping community now," said Sverre Svenning, a director with ship broker Fearnley Consultants.
The value of a new VLCC, which can carry up to two million barrels of oil, has slid to around $95 million from around $160 million before freight rates crashed in 2008.
The price of a new capesize, large dry bulk vessels hauling iron ore and coal, has halved to $50 million from 2008, a shipping source said.
South Korea's major shipbuilders have received requests to delay deliveries of 24 ships worth some $3 billion as the debt crisis in Europe bites.
