As results at Hanwha Philly Shipyard Inc. in the United States have been slow to improve, attention is focusing on when it will turn a profit. Hanwha Group's expected timeline for the Philly Shipyard to swing to the black has shifted from this year to next year. That is because rising construction expense and process delays for low-margin ships the yard won before Hanwha Group's transfer have not been easily resolved.
Hanwha Group is pushing to enter the commercial and naval shipbuilding markets by using the Philly Shipyard as its U.S. base for the Korea-U.S. shipbuilding cooperation project MASGA. In the commercial sector, the plan is to target U.S. demand for merchant ships such as liquefied natural gas (LNG) carriers. However, some in the shipbuilding industry say that even if the yard wins commercial orders, it will be hard for the Philly Shipyard to generate revenue anytime soon.
Hanwha Systems, at its second-quarter earnings briefing on the 28th of last month, presented next year as the timing for the U.S. Philly Shipyard to turn profitable. Early last year, shortly after acquiring the yard at the end of 2024, it had said a turnaround in 2026 was possible, but the company said losses are expected to continue in the second half of this year.
According to Hanwha Systems, among the three business divisions (defense, ICT, and others), the second-quarter revenue of the "others" division that includes the Philly Shipyard was 229.7 billion won, with an operating loss of 20.8 billion won. Of that, the Philly Shipyard loss was about 19.2 billion won.
The Philly Shipyard posted losses for seven consecutive years from 2018 to 2024 before Hanwha Group acquired it. After the acquisition, losses continued for six straight quarters from the first quarter of last year through the second quarter of this year.
The biggest reason cited for the continued losses is delays in the construction process for ships the yard won before Hanwha Group's acquisition. A prime example is the five national security multi-mission vessels (NSMV) the yard won from the U.S. Maritime Administration (MARAD) from 2020 to 2022.
In this project, after Hanwha Group acquired the yard, the third and fourth vessels were delivered and one remains. The yard had signed fixed-price construction contracts in the past, but as expense swelled during the work, it took significant losses on this ship type.
Three container ships the Philly Shipyard won from U.S. shipping company Matson in November 2022 also remain. Of these, hull assembly for the first vessel began in Aug. last year, and for the second vessel in May this year. After the steel-cutting ceremony in May this year, the third vessel has been undergoing steel processing and block fabrication.
Recently, Matson said it expects to take delivery of two ships first next year and the remaining one in the second quarter of 2028. Delivery is known to be delayed from the original plan.
At the earnings briefing, Hanwha Systems said, "Delays in the process of earlier loss-making ship types are pushing back subsequent container ship construction, and because loss-making ship types still remain, the loss trend will continue in the second half."
Baek Jong-min, an analyst at Yuanta Securities Korea, said, "There is a possibility that delivery of the Philly Shipyard's loss-making ship types will be delayed in the second half, which could affect Hanwha Systems' results." Of the two dry docks (construction spaces) the yard currently has, only one is used for newbuilds. Its building capacity is about 1 to 1.5 ships a year.
In Aug. last year, Hanwha Group announced a plan to invest $5 billion (about 7.2 trillion won) to add two docks and three quays, establish new block production facilities, and, in the mid to long term, secure capacity to build up to 20 ships a year. It is also reportedly reviewing ways to use docks at other shipyards.
Hanwha Group is first targeting the commercial ship market while gradually preparing to enter the naval shipbuilding market, which has high entry barriers. However, some say it will be hard to expect revenue given the structure of the U.S. commercial ship market.
Since Hanwha Group's acquisition, there have been no external private orders among the Philly Shipyard's backlog that are not from the U.S. government or internal Hanwha Group demand. The 10 petroleum product carriers and two LNG carriers won in July–Aug. last year were ordered by Hanwha Shipping LLC, a shipping affiliate Hanwha Group established in the United States in 2024.
According to the Philly Shipyard, winning LNG carrier orders by a U.S. shipbuilder is the first time in 50 years. As the United States has pushed requirements to transport a certain share of LNG export volumes on U.S.-built ships starting in 2029, Hanwha moved to secure LNG carriers. In the final rules, penalty provisions for noncompliance were removed, which is seen as weakening effectiveness.
According to the U.S. Congress, there are only two to three shipyards in the United States capable of building large commercial ships, including the Philly Shipyard and General Dynamics NASSCO on the West Coast. Fewer than 10 large commercial ships can be built annually in the United States.
U.S. shipyards mainly build domestic cargo vessels subject to the Jones Act (a law requiring ships plying between U.S. ports to be built in the United States), but they are small in scale and low in volume, which hurts profitability.
Currently, the commercial ship construction expense in the United States is estimated at three to five times that of Korea. With a high-cost structure leading to high production costs, some say it is impossible to build commercial ships at scale without subsidies.
The United States abolished commercial shipbuilding subsidies in the 1980s and 1990s. The U.S. government and Congress are now pushing to revive subsidies in forms such as investment tax credits and fiscal incentives, but legislation remains uncertain.
Yang Jong-seo, a senior researcher at The Export-Import Bank of Korea's Overseas Economic Research Institute, said, "If the U.S. government spreads subsidies so that orders can be won at profitable prices, some profitability could be expected in the commercial business, but it is questionable whether the abolished commercial ship subsidies will be revived."
Yang said, "Although Hanwha Group announced a large-scale $5 billion investment plan for the Philly Shipyard, considering that the yard itself is small and that production infrastructure and systems such as equipment and workforce have collapsed, it appears difficult to expect profitability in the commercial business."