TOKYO -- Kawasaki Heavy Industries is downsizing its struggling ship and offshore structure operations in Japan by around 30%. But while momentum for a broader realignment in Japanese shipbuilding is growing, once again the industry has failed to take the next step needed to better compete with bigger South Korean rivals.
The Tokyo-based group announced the segment restructuring plan Friday. It had committed itself to drawing up the plan by the end of March, with the possibility of withdrawing from shipbuilding or partnering with other players. But the version released on the very last day of the month did not include such steps.
Central to the plan is closing one of the two docks at the company's mainstay Sakaide works in Kagawa Prefecture around fiscal 2020. Kawasaki Heavy is expected to reduce the roughly 2,500 employees in related operations through attrition by retirement, scaling back hiring and reassigning workers to other divisions.
The company also will synchronize more with its Chinese shipbuilding joint ventures, including material procurement and sharing construction work on vessels ordered to Kawasaki Heavy. Construction of liquefied natural gas carriers -- a high-value-added business -- will go into full swing in China.
Kawasaki Heavy is targeting an 8% return on invested capital across the segment. In discussions since the fall, spinoffs and partnerships with other companies were proposed as an option in the event this goal could not be achieved through a restructuring within the group, according to a top manager.
The company probably decided not to go further -- by joining forces with an outside shipbuilder, for instance -- because the Sakaide dock closure will address the lingering employment issue for the time being.
The restructuring plan does not depart from the existing course but does represent "the best conceivable course of action now," said Shinji Kuroda, a senior analyst at Credit Suisse Securities (Japan).
Also on Friday, Mitsubishi Heavy Industries announced a basic agreement to partner with Imabari Shipbuilding and Namura Shipbuilding, both based in western Japan. Cost-competitive Imabari and Namura will build ships designed by Mitsubishi Heavy, and components will be standardized. Mitsubishi Heavy will also continue a similar arrangement with Oshima Shipbuilding.
Yet the heavy industry group's announcement did not delve into the specifics of the shipbuilding spinoff and capital partnerships targeted for fiscal 2018.
Korean rivals buoyed by Seoul in sinking market
The immediate impetus for the Japanese shipbuilding industry's restructuring efforts has been losses in areas such as offshore development and large passenger ships. But beneath that is a sharp slowdown in orders that in turn reflects a historic slump in ocean shipping rates.
In 2016, export ship contracts -- comparable to orders received by major shipbuilders in Japan -- fell to their lowest in 24 years. Some domestic shipyards are likely to have no work by 2019.
Japan's share of the global shipbuilding market used to surpass 50%, but now has fallen to the 20% range, as global leader Hyundai Heavy Industries and other South Korean players top the league table.
South Korean shipbuilders' earnings have tumbled too, partly because they undertook offshore development orders on unsustainable terms. But as demonstrated by the recently announced 6.7 trillion won ($5.99 billion) rescue package for Daewoo Shipbuilding & Marine Engineering, the South Korean government is leading efforts to fortify the domestic industry. The resurgent South Korean shipbuilders are starting to distort international competition.
"In normal conditions, they would have to withdraw," Shinjiro Mishima, president of Tokyo-based shipbuilder Japan Marine United, said of state-supported South Korean rivals. Amid a gradual recovery in LNG carrier orders, they "fight for orders with very low prices," Mishima added.
Kawasaki Heavy has a bitter experience making a failed attempt to merge with Mitsui Engineering & Shipbuilding. But if it continues to hesitate on bold steps toward consolidation, it will only fall further behind rivals.