A large number of shipyards in China are suffering at the moment, as the global maritime industry has been hit hard by a drastic decline in new ship orders amid the ongoing economic crisis.

China Rongsheng Heavy Industries Group, one of the leading shipyards in China, warned of a net loss for 2012, due to a sharp decline in orders and new vessel prices, according to a company filing with the Hong Kong Stock Exchange on December 24.

Recent media reports said the firm has seen many of its workers leaving during the past two months, and it has delayed paying the salaries of some employees for nearly three months.

The number of Rongsheng's employees has dropped to around 10,000 from nearly 50,000 at the peak time for the industry several years ago, according to a report from Guangzhou-based 21st Century Business Herald on December 27, citing workers from Rongsheng.

Jumping ship

Wu Jiawei, a 20-year-old electrician who works at a Rongsheng shipyard in Nantong, East China's Jiangsu Province, said he is planning to leave his current position after the Spring Festival in February, after he gets the year-end bonus.

"Several of my colleagues are also considering leaving the company, and maybe leaving the industry for good," Wu told the Global Times.

Wu joined Rongsheng in July 2011, and he said the number of employees in his team has halved to around 10 from the peak years of 2007 and 2008.

A PR employee at Rongsheng's Shanghai headquarters, who declined to be named, admitted that some employees have left the firm amid the gloomy industry prospects.

However, he also said that the company is shifting its focus toward the marine engineering sector, which involves different skills, so some workers have had to leave as a result.

He told the Global Times that the company's number of employees was now stable. "The total number of employees at Rongsheng was 25,000 during the peak time several years ago, not 50,000 as reported, and at present Rongsheng still has a total of around 20,000 employees."

The PR employee also tried to explain the media reports about the delayed salaries. "For contract workers, their salaries are not paid on a monthly basis. The company only pays them after their work has been approved," he said.

Lu Jian, a former co-worker of Wu's at Rongsheng's Nantong shipyard, told the Global Times that the reason he left the company in February 2012 was because he "basically had nothing to do every day."

Rongsheng received only two new orders in the first half of 2012, and the prices of the orders were substantially lower than before, according to the PR employee.

"For instance, a 176,000-deadweight-ton cargo ship was priced at between 70 and 100 million yuan ($11-$16 million) before 2008, but now the price has dropped to some 40 million yuan," he said.

Shares in Rongsheng on the Hong Kong Stock Exchange have dropped by nearly 10 percent since it issued the profit warning on December 24.

Rongsheng is not the only shipbuilding company to be hit by the industry downturn. Media reports have said that many privately owned small shipyards in Jiangsu and Zhejiang provinces have partly halted production amid the downturn.

Jiangsu-based Dongfang Shipyard, a privately owned company, has defaulted on employee salaries for half a year, and the total amount of unpaid salaries is more than 170 million yuan, according to a report by news portal 21cbh.com on December 18.

China CSSC Holding, a State-owned shipbuilding company, also reported on October 30 an 87.34 percent drop in third-quarter net profit to 70.49 million yuan.

"It is likely that 50 percent of the smaller privately owned shipyards in China will go bankrupt or be acquired by larger firms during the current downturn," Zhou Liwei, an expert at the China Classification Society, a testing agency for industry standards, told the Global Times on December 28.

Staying afloat

The PR employee said Rongsheng still has orders worth a total of $5.85 billion, enough to sustain the company's operations until 2015.

He also noted that ship buyers have started to push down prices amid the sluggish demand, and Rongsheng is responding by turning to marine engineering, such as producing equipment for offshore oil exploration.

Rongsheng Offshore & Marine, a subsidiary dedicated to the marine engineering business, was established in Singapore in October 2012, and it announced that it had already secured an order from a Singaporean client.

"Marine engineering is the only business for the shipyards that has been better than the overall performance of the industry," said Zhou.

Other shipbuilding companies such as COSCO Shipyard Group and Jiangsu-based Mingde Heavy Industry also announced similar strategies over the past two years.

"But they mostly did not report very fast progress, as they still lack the necessary expertise and brand recognition in the marine engineering sector," Zhou said, noting that buyers in the sector attach particular importance to quality rather than lower prices.

"Besides, recruiting talent for their marine engineering will be another challenge, as top people may feel reluctant to join a company in a sluggish industry," Zhou said.

Calmer seas ahead

Despite the current setbacks, domestic shipbuilders have still managed to report a combined profit in 2012.

In the first 11 months of 2012, China's 1,647 shipyards reported combined profits of 23.4 billion yuan, down 37 percent year-on-year, the latest data from the China Association of the National Shipbuilding Industry (CANSI) showed.

"The situation for the industry will be even worse in the next year or two, but unlike the steel industry, the sector  can still manage to report profits," Nie Lijuan, vice secretary-general of the CANSI, told the Global Times on December 28.

The CANSI also said that the industry only received new orders amounting to 17.04 million deadweight tons in the first 11 months of 2012, down 49.4 percent year-on-year.

Most domestic shipbuilding companies are now relying on the unfinished orders obtained during the past two years, but the industry is expected to see an increase in terms of new orders in 2013, according to Zhou.

"The current low price will attract ship buyers around the world, and most companies in the maritime industry still believe the global shipping industry will get back on track in 2015 or 2016," Zhou noted.