SHI signs contract for container ship supply after a 2-year interval

On July 2, Samsung Heavy Industries signed a contract worth USD 1.7 billion (KRW 2 trillion) for the supply of ten large container ships and nine oil tankers. It is the first contract signed by the Company in the second half of 2010, and it has been two years since the last order for large container ships was placed in the global market.

This contract brought the Company? total contracting amount for 2010 up to USD 5 billion, with 51 units of ships ordered. The Company announced that it has already achieved 63% of its annual target amount of USD 8 billion.

Most notably, the 8,000 TEU container ships ordered by Evergreen, a Taiwanese company, are the first container ships globally ordered after an interval of 24 months, as the last container ship was ordered in July 2008. This signals the recovery of the global container ship market, following the recovery of the bulk ship and oil tanker markets, which started in early 2010.

As container ships primarily transport industrial goods, a new order for container ships confirms the recovery of the economy. The Howe Robinson Container Index, which indicates the container ship market condition, has grown by 80% compared to the beginning of this year.

Alphaliner, a French market analyst firm, announced, ?he market conditions could not have been worse. 580 units of container ships, which account for 12% of the total container ship fleet, were not in operation as of December 31, 2009. The portion of container ships that are not in operation is currently 2.8%, which indicates the rapid recovery of the market. In particular, only three units of 5,000 TEU or larger container ships are not in operation.?As Container traffic is rapidly increasing, particularly in Europe and North America, there is shortage of large container ships. An increasing number of shippers see that now is the right time to place orders for new container ships, as container ship prices are expected to go up.

According to Clarkson Research, the price of 8,000 TEU container ships was USD 86 million at the beginning of this year. The fact that Evergreen signed the contract at over USD 0.1 billion per unit shows the rapid increase of container ship prices.

In addition, Evergreen, a company that had signed contracts for 47 units of ships with a Japanese shipbuilder for 16 years since 1994, replaced its long-time Japanese partner with Samsung Heavy Industries, recognizing Korea? high level of competency in large shipbuilding. This is an extremely meaningful result for Korea? shipbuilding sector.

As Evergreen is well known for its long-term partnerships, Samsung Heavy Industries expects that it will place additional orders in the future.

Despite having the world? fifth-largest share of the container market, with 97 units of ships, Evergreen has suffered difficulties in expanding its market share, as it has no single large container ships over 8,000 TEU.

To respond to the market, Evergreen is expected to place orders for a total of 100 units of container ships by 2015, including ten contracted with Samsung Heavy Industries. This is part of its long-term efforts to transform itself into the world? largest container shipper during the tenure of Chairman Chang Yung-Fa (83) of Evergreen.

CEO Roh In-Sik of Samsung Heavy Industries said, ?o shipper has contacted us for container ships last year, but we are receiving many offers to participate in bids from shippers in Singapore, Hong Kong, Latin America and Greece, as well as Evergreen.