South Korea’s shipbuilding industry is experiencing a “super cycle,” with its three major shipbuilders receiving a flood of orders. However, smaller and mid-sized shipbuilders are struggling to compete, particularly against Chinese rivals.
Leading the industry are HD Korea Shipbuilding & Offshore Engineering, Hanwha Ocean, and Samsung Heavy Industries, which dominate with their production of ultra-large container ships and LNG carriers. Supporting them are firms like HJ Shipbuilding & Construction, Dae Sun Shipbuilding & Engineering, and K Shipbuilding, which focus on small to medium-sized container ships, bulk carriers, and tankers. This combination once helped South Korea lead the global shipbuilding market.
The industry, which suffered a prolonged slump following the 2008 financial crisis, has recently seen a resurgence. The three major shipbuilders now have enough orders to last three to four years, allowing them to prioritize profitability. In contrast, small and mid-sized shipbuilders are facing intense price competition from China in the small container and tanker markets, putting them in a precarious position.
Despite these challenges, small shipbuilders, which once accounted for a quarter of South Korea’s order backlog, are employing various survival strategies. These include enhancing delivery competitiveness, securing orders for eco-friendly ships, transitioning to offshore wind turbine foundation projects, and establishing data centers.
For instance, Mastek Heavy Industries in Yeongdo-gu, equipped with two quay walls and three cranes capable of constructing four small to medium-sized ships simultaneously, is now planning to build a maritime and logistics data center on its shipyard site, boldly shifting its business focus. Dae Sun Shipbuilding & Engineering, once a significant mid-sized shipbuilder, is undergoing debt restructuring, selling its Yeongdo shipyard to improve its financial structure, and considering expanding into offshore wind turbine foundations.
Similarly, HSG Sungdong Shipbuilding, which once ranked in the top 10 for order volumes, has transitioned to the offshore wind turbine foundation business. Jeil SR Group, previously engaged in ship repair in Busan, has transformed its shipyard into a large café and cultural complex.
Most small shipyards in South Korea originally focused on building small to medium-sized domestic ships or producing ship blocks. During the boom of the 2000s, these companies expanded into full-fledged shipyards but now face the need to downsize or switch industries. For example, HD Korea Shipbuilding & Offshore Engineering’s Gunsan shipyard produces blocks for shipment to Ulsan. Although the local community hopes for full shipbuilding operations, this is deemed impractical due to lower production efficiency and economic viability.
The government has stepped in to support the industry by expanding the refund guarantee (RG) limits. RG is a system where a bank ensures the refund of advance payments to shipowners if the shipbuilder fails to deliver the ship. To enable financially unstable small shipbuilders to secure orders, increasing RG guarantees is essential. In June, five major banks, along with three regional banks and the Industrial Bank of Korea, decided to provide 1 trillion won in RG support for mid-sized shipbuilders.
However, an industry insider noted, “While the expansion of RG is welcome, the ongoing labor shortage, (made worse by the long economic slump), remains a major unresolved issue.”
