HD Hyundai is stepping up to secure India as its third overseas shipbuilding production base after Vietnam and the Philippines. The strategy is to focus on building high-value vessels at Korean shipyards and raise cost competitiveness for standard commercial ships such as bulk carriers and tankers—where price competition is fierce—through overseas production to take on China again.
The Indian government's push to rapidly expand its fleet and foster its shipbuilding industry is also boosting HD Hyundai's move into India. The government is bundling ship demand from government bodies and state-owned enterprises and expanding subsidies and support for shipyard infrastructure so that these orders lead to local construction in India.
◇ Invest and operate Indian shipyard facilities… local production of tankers and bulk carriers
According to the shipbuilding industry on the 10th, HD Korea Shipbuilding & Offshore Engineering, the intermediate holding company for HD Hyundai's shipbuilding business, signed a memorandum of understanding (MOU) in Apr. with a special-purpose entity of the Indian government and state-run Sagarmala Development Company to develop a shipyard with an annual capacity of 2.5 million GT (gross tonnage) in Thoothukudi, Tamil Nadu, and is preparing detailed business plans with the Indian side for shipyard construction.
Under this project, the Indian side will create a shipbuilding cluster and shared infrastructure, and HD Hyundai, as the key investor, will invest in and operate the shipyard facilities. Local estimates in India put the cost of building the Thoothukudi shipyard at up to $4 billion (about 5.4 trillion won). The Thoothukudi VOC Port Authority recently announced a tender to draw up a detailed project report for the shipbuilding cluster.
HD Hyundai's strategy is to make India a production base to reenter the global tanker and bulk carrier market. HD Korea Shipbuilding & Offshore Engineering last month scrapped a joint venture it had been reviewing with Cochin Shipyard Limited for a hull block plant, shifting its focus to the Thoothukudi project.
An HD Korea Shipbuilding & Offshore Engineering official said, "We determined that selection and concentration are needed and are continuing talks with the Thoothukudi side," adding, "With strong needs from the Indian government, we aim to add an overseas production base to secure cost competitiveness."
HD Hyundai's India initiative also aligns with the overseas production strategy it has pursued in Vietnam and the Philippines. Korean yards will focus on building high-value vessels, while standard commercial ships facing intense price competition will be produced at overseas yards with lower labor costs.
HD Hyundai is also pursuing a plan to build the initial batch of ships in Korea before the Thoothukudi yard comes online. The goal is to train Indian personnel at Korean shipyards. After they learn production and operations know-how in Korea, they will be deployed to the Thoothukudi shipyard to transition to a local production system.
Han Seung-han, a SK Securities analyst, said, "Tankers and bulk carriers are expected to be at the center of the next ordering cycle," adding, "For Korean shipbuilders to regain the market share that China captured in these vessel types, cost competitiveness is paramount. Since it is hard to achieve that solely with domestic yards, they can expand overseas base yards and increase build volumes."
◇ India seeks to secure 437 ships just in the public sector
According to the Directorate General of Shipping (DGMS), ship demand compiled by the Indian government in the public sector totals 437 vessels. That includes 267 bulk carriers, tankers, and container ships to be introduced by state-run Shipping Corporation of India (SCI) by 2047; 59 vessels for state oil and gas companies; 100 eco-friendly tugboats for major ports; and 11 dredgers for the state dredging company.
In gross tonnage (GT) terms, that is about 19 million GT, 36% more than India's current total merchant fleet of 14.02 million GT. The expected investment amounts to 2.2 trillion rupees (about 28 trillion won). Of these, 62 vessels will go to tender by next Mar.
India is moving to secure ships on such a scale because its share of cargo carried by its own fleet is far smaller than its trade volume. Last year, Indian-flagged ships carried just 6.08% of overseas cargo. Freight paid to foreign shipping companies totals about $75 billion a year, roughly on par with India's annual defense budget. As trade grows, the lack of domestic ships to carry it is pushing massive transport costs overseas.
The Indian government aims to increase the number of Indian-flagged ships while using new ship demand as a springboard to grow its shipbuilding industry. India has low labor costs, but productivity in shipbuilding is assessed to be low.
According to SK Securities, hourly labor costs at Indian shipyards are $3 to $4, lower than in China. However, labor cost per compensated gross ton (CGT) per ton, a workload unit that reflects ship size and build complexity, is $620, more than double China's $300. To offset low productivity, the Indian government is supporting 15% to 25% of the ship price for locally built vessels and putting public funds into shared shipyard infrastructure to attract foreign shipbuilders.
Samsung Heavy Industries is also partnering with private Indian shipbuilder Swan Defence to pursue cooperation in design, procurement, and production management locally. Beyond Tamil Nadu, State Governments such as Andhra Pradesh and Gujarat are also moving to build large shipbuilding clusters to attract global shipbuilders. Competition among State Governments to bring in Korean shipbuilders' production technology and operating know-how is fierce.
An industry official said, "Since Korean shipbuilders cannot win all of India's demand for more than 400 ships, they must prove their process management capabilities to see how much they can raise India's low productivity."