A Move to Overcome Domestic Capacity Limitations

South Korean shipbuilders are establishing a second production base in Southeast Asia to overcome domestic capacity limitations. With domestic shipyards operating at full capacity due to the increase in global new ship demand, they are seeking to secure additional production capacity in Southeast Asia, where business costs are relatively lower.

HD Hyundai Mipo plans to expand the annual construction capacity of its Vietnamese shipyard from the current 15 ships to 23 ships by 2030, an increase of nearly 50%.

The company has recently completed an official request to the Vietnamese government to proceed with the expansion of production facilities and process improvements. The goal is to secure an additional construction volume of 1.5 ships per year.

The business site located in Khanh Hoa Province, central Vietnam, currently has a 992,000 square meters area with a 400,000-ton dock, a 100,000-ton dock, and a 1.4km quay. HD Hyundai Mipo plans to focus on constructing medium-sized petrochemical product carriers (PC ships), which account for more than 60% of its commercial ship order backlog, through the capacity expansion in Vietnam.

HD Hyundai Heavy Industries is also utilizing the Subic shipyard in the Philippines. The company produces blocks for shipbuilding and offshore wind substructures at this site. It will also use it as a base for expanding businesses such as overseas ship maintenance, repair, and operation (MRO).

The Subic shipyard, located 110km northwest of the capital Manila in Subic Bay, was established by Hanjin Heavy Industries (now HJ Heavy Industries) in 2006 but ceased operations in 2019 due to the global shipbuilding market downturn.

An industry official said, “The bankruptcy of the Subic shipyard in 2019 clearly showed the downturn in the shipbuilding industry in the 2010s,” adding, “The re-entry of domestic shipbuilders into this site can be seen as a signal that the shipbuilding industry is in a boom cycle.”

Hanwha Ocean is strengthening its offshore plant production capabilities by entering Singapore. Hanwha Group completed the acquisition of a 95.15% stake in Dynamac, a specialist in offshore facility topsides, earlier this month. The plan is to resolve the shortage of offshore facility sites in Korea through “multi-yards” in Southeast Asia. Hanwha Ocean will combine the offshore facility hulls manufactured at its Geoje plant with the topsides produced by Dynamac. With this acquisition, Hanwha Ocean is also expanding orders for floating production storage and offloading (FPSO) and floating liquefied natural gas (FLNG) facilities.

Samsung Heavy Industries is also reportedly considering constructing ships designed in Korea at shipyards in Southeast Asia.

The continuous investment by shipbuilders in Southeast Asia to enhance their presence is due to the saturated production capacity of domestic sites. To meet the rapidly increasing demand for shipbuilding and offshore facilities, they are seeking the necessary sites and manpower in Southeast Asia, which is relatively cost-effective and geographically close.

Domestic shipyards are operating at around 100% capacity. HD Hyundai Heavy Industries and HD Hyundai Mipo, which had operating rates of 60-70% two years ago, have risen to the mid-90% range this year. Another shipbuilding affiliate, HD Hyundai Samho, is approaching 116.0%. Hanwha Ocean and Samsung Heavy Industries are also continuing construction work without empty docks, recording operating rates of 99.8% and 110%, respectively, this year.

If Korean shipbuilders can increase the volume they can build through their expansion into Southeast Asia, it will benefit them in the competition for orders with China. It will help them not only secure additional orders but also strengthen the ability to meet delivery schedules for existing volumes.

Another industry official said, “It is difficult to increase production capacity beyond the current level in Korea due to the lack of shipbuilding infrastructure and aging population,” adding, “If shipbuilders continue to invest steadily in Southeast Asia, the local workforce will grow, and their skill levels will improve, making it a true second production base.”

Source: Businesskorea