Shipyards are all at sea. As vessel prices fall, buyers are reneging on orders, sacrificing deposits rather than adding to fleets at bull market prices. Meantime, huge addition of capacity – the global order book is the biggest since 1973 – suggests a fallow period to follow. Korea, whose three top builders command a global market share of 40 per cent, hoped to ride out the storm by dint of its vessel mix and superior prowess – letting newer, less experienced Chinese yards take most of the pain. But that holds less water these days. Korean shipyards too are suffering cancellations and new orders are slowing. Hyundai Heavy Industries, the number one shipbuilder, saw third quarter net profits plunge by a third. HHI’s share price is roughly one-third the level of end-2007 while Samsung Heavy’s shares have halved over the same period. Some smaller yards have downed tools, with C&Heavy Industries this week calling in the banks to stave off bankruptcy.

Worse is to come. The global order backlog stood at $557bn investment value as of the start of November, according to Clarkson Research Services. Nordea, the ship financing bank, believes maybe 30-40 per cent of these orders will fail to materialise for various reasons, including inability to secure financing. Even assuming Korea suffers proportionately less than others, the impact on the bottom line is magnified by foreign exchange contracts. These effectively lock in currency rates to ensure that when the ship is delivered, the dollars will be worth the same in won terms. A change in accounting rules last month, designed to offset the impact of the falling won, means shipbuilders can recognise valuation gains from up front. These contracts add up to some $50bn, according to the Bank of Korea, making up a sizeable chunk of the country’s external debt. If the dollars fail to come in, in other words, that creates problems for Korea as well as its shipbuilders.