The Secret Behind Korea's Shipbuilding 'Big 3' Overcoming the Order Drought

[Image source=Yonhap News]

[Asia Economy Reporter Park So-yeon] South Korea's 'Big 3' shipbuilders are showing better-than-expected performance this year by continuing to secure large orders despite the impact of the novel coronavirus disease (COVID-19). The key to their success amid the crisis is the high value-added shipbuilding technology of our shipbuilding industry, such as liquefied natural gas (LNG) carriers and very large crude carriers (VLCCs).

Currently, the order fulfillment rates for this year’s targets of Korea Shipbuilding & Offshore Engineering, Samsung Heavy Industries, and Daewoo Shipbuilding & Marine Engineering are 91%, 65%, and 75%, respectively. These figures are not significantly lower compared to last year’s 82%, 91%, and 82%.

Although Korea Shipbuilding & Offshore Engineering adjusted its order target from $15.7 billion to $11 billion in October, the industry analyzes that this is a favorable result considering the impact of COVID-19. Looking at the types of ships ordered by the 'Big 3' this year, it appears they have almost monopolized orders for high value-added vessels such as LNG carriers and VLCCs.

According to Clarkson Research, a UK-based shipbuilding and shipping market analysis firm, a total of 53 large LNG carriers have been ordered worldwide so far this year, and when adding 10 icebreaking LNG carriers being built by Samsung Heavy Industries at the Zvezda Shipyard in Russia, the total rises to 63. Considering that Korea Shipbuilding & Offshore Engineering, Samsung Heavy Industries, and Daewoo Shipbuilding & Marine Engineering have secured orders for 21, 19, and 6 vessels respectively, the 'Big 3' hold a market share of 73%.

LNG carriers are high-priced vessels with an average price of $186 million (based on 174,000㎥ capacity, approximately 206 billion KRW). They are highly profitable but require advanced shipbuilding technology, making this a field where Korean shipbuilders have a unique competitive edge. With LNG gaining attention as an eco-friendly fuel alternative to coal and oil, and Qatar reserving over 100 LNG carrier construction slots with the 'Big 3,' the outlook for Korean companies’ orders next year looks promising.

In addition to the traditional 'cash cow' LNG carriers, VLCCs have also played a significant role in alleviating the order drought for Korean companies this year. Globally, a total of 42 VLCCs were ordered this year, with Korea Shipbuilding & Offshore Engineering and Daewoo Shipbuilding & Marine Engineering securing 27 and 7 vessels respectively among the 'Big 3.'

Korea’s market share stands at 81%, with Korea Shipbuilding & Offshore Engineering alone securing more than half of the global VLCC orders. VLCC prices have significantly dropped this year, prompting shipowners to increase orders, perceiving the current prices as a bottom. VLCC prices fell from $91 million per vessel in April to $85 million in November.

Moreover, with the International Maritime Organization (IMO) tightening environmental regulations, about 18% of currently operating VLCCs are aging vessels over 15 years old, which is expected to increase ship replacement demand next year. A representative example is Daewoo Shipbuilding & Marine Engineering recently signing a letter of intent (LOI) with a European shipowner to build 10 LNG dual-fuel VLCCs. Additionally, orders for ultra-large container ships, an area where Korea has strengths, are expected to increase due to soaring freight rates, which is anticipated to be a positive factor for the 'Big 3' companies.

This content was produced with the assistance of AI translation services.