South Korean shipbuilders are aggressively pursuing the North American defense market with warships. The United States, despite its formidable military strength, faces challenges in shipbuilding and repair infrastructure, leading to frequent delivery delays. This has brought attention to the technology and productivity of South Korean companies. “Allies like South Korea and Japan are building high-quality ships, including the Aegis, at a fraction of the cost of the United States,” U.S. Secretary of the Navy Carlos del Toro, who toured HD Hyundai Heavy Industries (HD HHI) and Hanwha Ocean during a visit to South Korea in February, said at an event hosted by the Navy League, “and “We were able to monitor the construction process in real-time, through which delivery dates were predictable.” He also emphasized an opportunity to attract advanced Korean shipbuilders to open U.S. subsidiaries and invest in the U.S. shipyards.
HD HHI and Hanwha Ocean, which compete fiercely in the warship business, intend to initially focus on establishing a presence in maintenance, repair, and overhaul (MRO) services in the U.S. In the long term, they plan to expand their businesses gradually in the United States to secure warship contracts. To achieve this goal, they are actively working to secure local shipyards, which is a preliminary step.
Based on the Jones Act enacted in 1920, the States require goods shipped between U.S. ports to be transported on ships built, owned, and operated by United States citizens or permanent residents. The same law applies to naval warships, making it essential to secure local shipyards to order US Navy ships. However, the Jones Act has led to the virtually uncontested allocation of shipbuilding volumes, coupled with high local labor costs, resulting in higher construction prices and delivery delays.
HD HHI applied for the Master Ship Repair Agreement (MSRA), a qualification required for the US Navy ship MRO business last year, and completed an on-site inspection of the shipyard earlier this year. On Mar. 24., the company expanded its collaboration by signing a memorandum of understanding (MOU) with Philly Shipyard in Pennsylvania, U.S., focusing on shipbuilding and MRO services for government vessels commissioned by local authorities. Hanwha Ocean also established a dedicated MRO organization last year, prioritizing expanding its specialty ship business over merchant vessel orders. According to market research firm Mordor Intelligence, the global naval ship MRO market is projected to reach $57.76 billion (approximately 78 trillion won) this year, with the U.S. market alone contributing around 20 trillion won (approximately $14.52 billion) annually.
