Shipbuilding Industry

An Expert's View about Sales in Singapore

Last updated: 28 Feb 2011

Summary

Korea holds a world class reputation pertaining to the construction of large ocean going vessels. Korea, home to major global shipbuilders, has taken a firm root as a world leader in building offshore production units, the latest LNG carriers, super container ships and giant tankers. Specifically Korean shipyards took up over 60% of worldwide orders for LNG carriers and mega container ships. As for offshore production units, Korea is also a dominant player with a substantial 63% global market share in 2010. The nation has become synonymous with shipbuilding.

Korean shipbuilders managed to stay ahead of its nearby competitors by significantly improving productivity through assembling key segments of the vessel into modular blocks. However, compared with its reputation and industry size, the profitability of the Korean shipbuilding industry is being appraised relatively low as the average operating profit of Korean shipyards remains at 10%. In order to increase its profitability, as well as protect its global leader position in the future, the Korean shipbuilding industry is directing its efforts to focus on building high value vessels.

Among 12 FPSO megaships with over 2 million-barrel capacity ordered globally so far, Hyundai Heavy Industry received orders for seven vessels while Daewoo won three. During the same period, Samsung secured a total order of 14 small and medium sized vessels with a capacity of less than two million barrels. Because Korean shipyards enjoy technology dominance of building offshore vessels such as FPSOs and deep-water drill ships, industry experts forecast that Korean shipyards will be the beneficiary of an anticipated growing demand of offshore units over the next few years. Recently, several foreign manufacturers of offshore equipment and components are investing in Korea and establishing production facilities in Korea to directly supply local shipyards. Foreign companies are also looking to tap into Korea’s large pool of skilled labor.

The localization of shipbuilding equipment and components for commercial vessels such as LNG, tanker, container ships is expected to reach 80% domestic content. However, where the accumulation of core technologies is required such as ship design, engine, electronics and navigation, Korea’s shipbuilding equipment and ship component industry heavily depends on sophisticated foreign products. The U.S. marine industry has shown strength and been successful suppliers in electronics and communications systems. In the mean time, the localization of instruments for offshore vessels remains at its infant stage, satisfying less than 10% of the total demand. Thus, best sales prospects also lie with a majority of equipment and components of offshore production units (fixed platform, FPSO, and drill ship).

At the same time, low-carbon, Green Growth has become Korea’s new development strategy, Korean shipbuilding industry mapped out the vision “global leader in clean shipbuilding ocean era toward 2020”. A key project to realize this vision is the technology development of future-oriented and eco-friendly shipbuilding and ocean systems. U.S. innovative solutions such as reducing green house gas emissions will be met with high interest.

Market Demand

In terms of all three shipbuilding key measures such as new order, completion and order books, Korea posts approximately 21%, 33%, and 31% of global market share respectively in 2009. Truly, the shipbuilding industry has become a representative industry of Korea significantly contributing to the nation’s economic performance as well as job creation. Although Korean shipyard experienced a rapid decline in new shipbuilding order in 2009, the shipbuilding industry still ranked first among all Korea’s export oriented industry sectors with 12% of a total Korean export surpassing semiconductors and automobiles.

Korea has the same advantages of abundant coastlines for shipbuilding docks, a strong local steel industry, and relatively low labor costs that were once the basis of the shipbuilding industry of former global leaders such as the U.S., Europe and Japan. Although the Chinese shipbuilding industry actually surpassed Korea as the world’s largest ship builder in the first half of 2010, China currently produces mainly low-cost vessels whereas Korea has moved up the value chain and become dominant in more specialized vessels.

Korean shipbuilders have a virtual technology monopoly among building high-end, high-value vessels. The three major Korean shipbuilders, Samsung Heavy Industries (SHI), Hyundai Heavy Industries (HHI), and Daewoo Shipbuilding and Marine Engineering (DSME) developed its respective technology innovation to enhance productivity. Specifically, SHI has developed an LNG-FPSO top-side plant, a self-propelled offshore liquefied natural gas (LNG) floating production, storage and offloading (FPSO) vessel with the installment of a top-side plant to liquefy natural gas on an LNG vessel. HHI has concentrated efforts on expanding its territory in the world offshore facility market by developing semi-submersible, jack-up drilling rigs and FPSOs. DSME has acquired the most sophisticated technology in hydrodynamics design which is used in designing ships and propulsion systems.

Compared to its global leader position, Korea marine equipment and component industry, backward industry of shipbuilding, is relatively insignificant. Korea’s shipbuilding cooperatives classify the equipment and part of shipbuilding by four categories based on functionality: 1) Engine & Machinery 2) Hull & Outfitting 3) Steering Devices, and 4) Electric & Electronics and Communication Devices. Generally speaking, the cost of equipment and components are responsible for approximately 55-65% of the total shipbuilding cost of Korean shipyards. The marine equipment produced at local plants generally meet Korean required standards of Korean shipyards and, more importantly, is priced lower than imported equipment and components. However, the very characteristics of the marine component industry requiring a large number in a small quantity on a “make-to-order” basis, global marketing and after-service network, significant R&D expenditure as well as internationally proven performance record demanded by ship owners present challenges to the further development of Korea’s marine equipment and component industry.

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Posted: 18 February 2011, last updated 28 February 2011

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