Orders plunge 87% from an already terrible 2015.

The ravaged shipbuilding industry in South Korea, deemed too big to fail, is getting its largest taxpayer bailout yet, totaling $9.6 billion, on top of the bailout funds already handed out last year, and on top of another $9.6 billion this year to bail out state-owned banks that were getting slammed by defaulting loans extended to the shipping industry.

Their problem: according to trade ministry, cited by the Wall Street Journal, orders for new ships to be built in South Korea have collapsed by 87% over the past nine months from the already terrible 9-month period last year, to almost nothing.

South Korean container carrier Hanjin was allowed to collapse in August. It “shattered the complacency” that TBTF carriers “are immune to failure.” It is now getting chopped into pieces to be sold off under bankruptcy court orders. Its rival, Hyundai Merchant Marine, was bailed out and restructured earlier this year. Other carriers around the globe have been sunk by two years of excruciating low shipping rates, triggered by rampant overcapacity and stagnating world trade. Larger carriers are consolidating to survive. Just on Monday, Japan’s Big Three – Nippon Yusen, Mitsui O.S.K. Lines, and Kawasaki Kisen Kaisha – announced that they would merge to form the world’s sixth largest container carrier.

These carriers have stopped ordering ships, and many have canceled orders, and Chinese shipbuilders have muscled into the market years ago to grab share by slashing prices, and they too are going bankrupt.

But the shipbuilding industry is special to South Korea, a country whose economy depends on exports. The world’s three largest shipbuilders by erstwhile order volume are Korean: Hyundai Heavy Industries, Daewoo Shipbuilding & Marine Engineering, and Samsung Heavy Industries. In 2015, the industry accounted for 7.1% of South Korea’s manufacturing jobs and 7.6% of exports.

The beleaguered Big Three have already sold noncore assets and sloughed off employees as part of prior bank-led restructuring plans.

They’re dealing with terrible economic dynamics. Global orders for ships peaked in 2007 at over 90 million compensated gross tonnage (CGT), of which about one-third went to Korean shipbuilders. Orders crashed during the Financial Crisis to a low of 18 million CGT in 2009, then recovered. In 2013, orders maxed out at 60 million CGT, still down 33% from the prior peak. Those were the good times.

In 2016 so far, orders have collapsed to only 9 million CGT, according to the Wall Street Journal. That’s about half of the orders during the worst part of the Financial Crisis. And South Korea’s share of this pittance in orders has fallen from one-third to just a tiny sliver.

So on Monday, South Korean Finance Minister Yoo Il-ho announced another big bailout program: to help the shipbuilding industry deal with the “order cliff,” the government would directly order vessels and also provide financing for shipping companies to order vessels. In total, this would generate orders for 250 vessels through 2020, valued at 11 trillion won ($9.6 billion) funded by the government.

But these ships won’t be the big traditional money makers, such as large containerships and dry-bulk carriers, of which the world is already vastly oversupplied. Instead, these will be vessels for the fishing industry and for small shipping companies, along with ferries, patrol boats, warships, and coastguard vessels. The hope is this will carry shipyards into the next glory period, when world trade and shipbuilding would resurge.

For now, the government is hoping to keep the Big Three shipbuilders alive. They will have to shed 32% of their workforce by 2018, cut their operations by 23%, sell more noncore businesses, and take other measures.

This bailout comes on top of prior bailouts, including the one of Daewoo Shipbuilding & Marine Engineering in October 2015, when the state-owned Export-Import Bank of Korea and the Korea Development Bank (which already owned a controlling 31.5% stake) handed it a $3.7-billion bailout package of new loans, a rights offering, and debt-to-equity swaps.

The South Korean shipbuilders weren’t just sunk by the collapse of the global shipping industry, but also by their expedition into new territories: Seeing over the years that orders for big vessels would be heading south, and that prices were under pressure from competition in China, they decided in 2010 to get into the nirvana of profits: building offshore oil rigs. But that turned into a nightmare, and heavy losses, even before the price of oil crashed.

In June, the government and the Bank of Korea set up a special fund of 11 trillion won ($9.6 billion) to recapitalize state-run banks which were getting hit by defaulting loans from carriers and shipbuilders.

In addition, the finance ministry said the government would offer 6.5 trillion won ($5.6 billion) for South Korean carriers to order new bigger vessels to improve their profit margins and survive a little longer. And then there are plans to create a state-backed ship-financing company with initial capital of 1 trillion won ($880 million).

No one knows for sure how long the misery in the shipbuilding and shipping industries will continue. Overcapacity is a terrible condition. Creating it benefits many on the way up. It enriches them and makes the economy look good. But when it comes home to roost, the price is stiff. People lose their jobs. And many of the costs will be socialized. It’s only then that you see just how much capital has already gone down the drain, and how much more will follow.

The pain will continue, with many more false-hope-ups and brutal smack-downs, and more carriers will crack under their debt. Read… Why Hanjin’s Zombie Collapse Won’t Be the Last One

Enjoy reading WOLF STREET and want to support it? Using ad blockers – I totally get why – but want to support the site? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.