At least one South Korean shipbuilder is getting hit by the cancellation of orders by CMA CGM, and others are fending off cancellations by the troubled French container line, which can't pay for the orders it placed in more profitable times.
Hanjin Heavy Industries and Construction has been suffering from order cancellations by the carrier, which has been trying to cancel contracts for 15 vessels of 3,600 20-foot units out of a total of 45 ships on order at South Korean shipyards.
Shipbuilding sources in South Korea told The Korea Times that the line has canceled a $1.1 billion contract with Hanjin Heavy Industries.
"As far as I know, CMA-CGM canceled the contract with Hanjin," a high-ranking industry official who asked not to be identified, told The Korea Times.
In a regulatory filing to the Korea Exchange, Hanjin said an "unnamed shipping group" scrapped part of a previous deal worth $113 million.
In 2006, Hanjin signed a contract with CMA-CGM for four 6,500-TEU containerships at $100 million each. The vessels had been slated for delivery in September 2009.
"Hanjin is facing other order cancellations from the French company due to the latter’s unstable positions in terms of cash flow," the official said. "The French company will delay the delivery of the remaining orders from Hanjin. Situations are not favorable for the Korean shipyard."
The order cancellation came after CMA-CGM revealed that it was in talks to remove some "new projects" from its order-book in South Korea and delay the delivery of others.
The carrier, which lost $515 million on $4.8 billion in revenue in the first half of 2009, said it expects to return to profit in 2010.
CMA CGM has been struggling to manage its aggressive 10-fold expansion of its slot capacity over the last 10 years.
CMA CGM ordered 40 containerships with 369,500 TEU capacity worth $5.1 billion at Asian shipyards, and amassed an estimated $5.6 billion in debt. It has been trying to restructure that debt in negotiations with its creditor banks. It had sought a one-year moratorium on payment of interest and principal.
Now, the carrier has been in deep talks with Asian shipyards about canceling and delaying delivery of 30 of the 45 ships it has already ordered.
Industry officials say the world's big three shipyards ― Hyundai Heavy Industries, Daewoo Shipbuilding & Marine Engineering and Samsung Heavy Industries ― are expected to move away from possible order cancellations as the French company has ordered highly-profitable containerships with 10,000-TEU capacities.
"In 2009, bigger container liners, including CMA-CGM, cancelled containership orders, mainly those under 10,000 TEU capacities. But the big three are still safe with their order books," another high-ranking industry official said.
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