Samsung Heavy Industries will sign a contract on the 14th to hand over the entire construction of two oil tankers to HSG Sungdong Shipbuilding Co., a mid-sized Korean shipyard. This is the first time a Korean shipbuilder has entrusted an entire shipbuilding project to a domestic shipyard that is not an affiliate. It marks the full-scale launch of a collaboration model between Samsung Heavy Industries, whose docks are saturated amid a shipbuilding boom, and HSG Sungdong Shipbuilding Co., which has past experience building tankers. Samsung Heavy Industries plans to entrust construction of two additional vessels to HSG Sungdong Shipbuilding Co. afterward.
According to the shipbuilding industry on the 13th, Shipyard Head and Executive Vice President Lee Wang-geun of Samsung Heavy Industries and CEO Kim Hyun-gi of HSG Sungdong Shipbuilding Co. will meet on the morning of the 14th at Samsung Hotel in Geoje, South Gyeongsang, to sign the construction contract for Suezmax (S-MAX) tankers that Samsung Heavy Industries won from a Greek shipowner. The S-MAX class is the largest size of tanker that can pass through the Suez Canal.
Dozens of Samsung Heavy Industries quality and process personnel are already stationed at the Tongyeong yard and are working on the collaboration. As preparations for full-ship outsourcing proceed, the size of the dispatched team is expanding. Over the next year or so, the two companies will go through key preparatory steps, including detailed design, ordering of major equipment, and process simulation, and in December next year will begin the first stage of ship construction, "steel cutting (plate cutting)." This project also marks HSG Sungdong Shipbuilding Co.'s resumption of newbuilds on a full-ship basis for the first time in about eight years.
◇ Samsung Heavy picks former tanker powerhouse Sungdong… Full-ship building experience proves decisive
Samsung Heavy Industries unusually handed over the entire tanker construction to a domestic mid-sized shipbuilder because orders for newbuilds are flooding in. In the first half of this year, the dock utilization rate at Samsung Heavy Industries' only Korean yard in Geoje was 116%, with more than three years of workload already secured. As a result, Samsung Heavy Industries has recently adopted a "production flexibility" strategy that prioritizes higher-margin liquefied natural gas (LNG) carriers and other high-value vessels for the Geoje docks, while diverting tankers to outsourcing to maximize dock efficiency.
Until now, the main partners for this strategy were Chinese shipyards with lower labor costs, but for the first time a domestic mid-sized shipyard has become the recipient of full-ship outsourcing. While China has the edge on simple unit costs, industry assessments say Korean shipyards are more suitable in terms of quality control and long-term collaboration stability.
An industry source said, "Full-ship outsourcing is not a one-off contract but a structure that extends over several years, so domestic shipyards, which are geographically close and easier to manage in terms of processes, are more stable in the long run," adding, "At a time when Korea's shipbuilding ecosystem has weakened, Samsung Heavy Industries choosing a domestic mid-sized company is also meaningful for maintaining the shipbuilding value chain over the long term."
Samsung Heavy Industries chose HSG Sungdong Shipbuilding Co. as its first domestic partner due to its construction track record and large-scale facilities. In its previous era as Sungdong Shipbuilding & Marine Engineering (hereafter Sungdong), HSG Sungdong Shipbuilding Co. focused on building tankers and rose to No. 8 in the world in 2007. The S-MAX tankers it will take on this time are also a vessel class in which Sungdong previously showed strength.
Sungdong went through ups and downs, including court receivership in 2018 due to a shipbuilding downturn, but its core assets remain intact. The large yard of 1.2 million square meters (about 360,000 pyeong) in Tongyeong, South Gyeongsang, and onshore construction facilities such as a goliath crane are still capable of normal operation.
Sungdong is considered to have differentiated competitiveness among mid-sized shipyards because it can shorten construction periods by preassembling large blocks at the yard to reduce the number of lifts. The collaboration experience built over the past several years, as Samsung Heavy Industries entrusted block and partial-ship volumes to HSG Sungdong Shipbuilding Co., also worked positively.
Sungdong was acquired by HSG Heavy Industries in 2020 and has sought a turnaround by focusing on offshore wind substructure projects. Founded in 1989, HSG Heavy Industries began operations in 1990 as an in-house contractor at Samsung Heavy Industries and has long been a partner of Samsung Heavy Industries. With this contract, HSG Heavy Industries has laid the groundwork to once again expand into the newbuild ship sector.
◇ Quality and delivery control are key… Starting point for Korea's shipbuilding outsourcing model
Although production is outsourced, the vessels will ultimately be delivered to the owner bearing the "Samsung Heavy Industries" brand, making quality control the key variable in this collaboration. This is why Samsung Heavy Industries is dispatching teams of dozens of process and quality personnel to be stationed at the Tongyeong yard. Samsung Heavy Industries will directly oversee key management points such as inspections, welding quality, and process-by-process checks.
An industry source said, "Since this project proceeds under the shipowner's approval, major quality checks and delivery schedules will be operated in a form where Samsung Heavy Industries manages and supports them on an ongoing basis," adding, "HSG Sungdong Shipbuilding Co. also has past experience in full-ship construction, and with the two yards adjacent in Geoje and Tongyeong, smooth collaboration is working in their favor."
In the shipbuilding industry, there is a view that this case could be the starting point for a "domestic full-ship outsourcing" model. With major shipbuilders' docks unlikely to be freed up anytime soon and domestic mid-sized shipyards regaining a certain level of newbuild capacity, there is analysis that full-ship volumes could continue to flow to domestic yards rather than overseas.