This year, the new ship order rate in South Korea is expected to fall below 20%. This marks the lowest figure since the severe recession that the shipbuilding industry experienced in 2016. However, forecasts indicate that South Korean shipbuilders' competitive advantage, particularly in high-value-added vessels such as liquefied natural gas (LNG) carriers, will continue for the time being. The domestic shipbuilding industry is expected to invest in the development of smart and eco-friendly ship technologies to counter China’s aggressive volume strategy.
According to the shipbuilding industry on the 20th, the economic research institute ING Think, a part of the Dutch financial corporations ING, analyzed in its report 'The Renaissance of Asian Shipbuilding,' published on the 16th, that although South Korea’s market share in the global shipbuilding industry has declined over the past four years, the efficiency and competitiveness of South Korean shipbuilders have increased. It particularly noted that South Korean shipbuilders are overwhelmingly dominant in high-value-added vessels such as LNG and liquefied petroleum gas (LPG) carriers, to the point where there are no competitors.
From January to November this year, South Korean shipbuilders received 10.92 million compensated gross tonnage (CGT) out of a total of 60.33 million CGT of new ships ordered worldwide. In terms of number of ships, this represents 248 out of 2,159 vessels. South Korea's market share stands at 18%, the lowest since 2016 when it was 15.5%. It is likely that the annual new ship market share will remain below 20%.
China increased its market share to 69% from January to November thanks to domestic orders. Following restructuring during the shipbuilding recession triggered by the global financial crisis in 2008, China has swept up orders for easier-to-build container ships and bulk carriers at low prices, maintaining the top spot in new orders globally since 2012. In recent years, South Korean shipbuilders have also increased contracts in the LNG carrier market that they previously dominated, boosting their standing.
China is assessed to have an absolute competitive advantage in terms of labor and raw materials prices. Labor costs, which account for more than 20% of total production costs, are only half of those in South Korea or Japan. Additionally, funding support from the Chinese government is ample.
ING analyzed that among South Korea, China, and Japan, South Korea has the highest shipbuilding utilization rate per yard. The ratio of orders per yard (based on the number of ships) is 70.9 for South Korea, 21.3 for China, and 13.3 for Japan. ING noted, 'South Korean shipbuilders are filling their yards with high-revenue and reliable orders.'
A significant portion of the orders received by South Korean shipbuilders is for export, while most of the ships ordered by China were commissioned by Chinese shipowners. Looking at the share of ship exports in the nation's total exports, South Korea exceeds both China and Japan. ING stated, 'This year, the shipbuilding industry is leading the growth of South Korean exports. Given that the current order backlog stands at 3.5 years, it is expected that ship exports will continue to increase for at least the next three years.'
In the shipbuilding industry, although China is expanding orders for LNG carriers in an effort to catch up with South Korea, it is believed that it will take more time for China to reach the same level of technological capability as South Korea. In 2022, China received orders for LNG carriers that South Korean firms could not fulfill, which will be delivered starting next year. Once they begin actual operations, it is expected that China's technological capacity can be assessed.
South Korea plans to accelerate the development of new vessels such as ammonia carriers and carbon dioxide carriers, as well as fully autonomous ships and zero-carbon engines, in order to maintain its technological gap.
There have also been cases where South Korean shipbuilders, focusing on high-revenue vessels, have outsourced production to Chinese shipyards. Samsung Heavy Industries entrusted the building of four oil tankers, valued at 459.3 billion won, ordered by an African owner at the end of October, to a Chinese shipyard. Samsung Heavy Industries is responsible for the design and procurement of major equipment, while production takes place in China using the facilities and workforce of the Chinese shipyard. Currently, about 65% of Samsung Heavy Industries' order backlog, or 79 ships, consists of LNG, LPG, and other gas carriers, primarily focusing on high-priced ship types.
A representative from Samsung Heavy Industries remarked, 'The fact that the owner entrusted the order to us despite using Chinese outsourced production means they trust Samsung Heavy Industries' quality assurance.'
The inauguration of Donald Trump's second administration is also seen as an opportunity for the South Korean shipbuilding industry. While Trump has threatened to raise tariff barriers across all sectors, he has requested assistance from South Korea specifically for the shipbuilding and marine defense sectors. Following Hanwha Ocean's acquisition of the U.S. Navy vessels maintenance, repair, and overhaul (MRO) business, it is anticipated that South Korean shipbuilders, including HD Hyundai, could enter the U.S. warship construction market. With the shipbuilding industry in the U.S. in decline, there is a need for partners to curb China's maritime dominance.