South Korea has emerged as a significant player in shipbuilding holding the fort in the face of increasing competition from China
The growing need for ships worldwide as a result of expanding maritime trade along with naval modernisation and construction has increased the shipbuilding industry's strategic significance in the eyes of governments. The sector now occupies a higher priority in the state's strategy due to its national security implications, especially its linkage with maritime and economic security. Beyond its direct purpose, shipbuilding influences a state's ability to build, repair, and maintain ships as well as its ability to stimulate economic growth. All these factors have contributed to increasing competition in the shipbuilding sector in the last two decades. Amidst this sectoral tussle, South Korea has emerged as a significant player holding the fort in the face of increasing competition from China. But with more internal and foreign obstacles to overcome, it's becoming increasingly critical to assess if South Korea will be able to maintain its firm hold on the sector. Therefore, it is essential to comprehend the actions undertaken by South Korea to address the issues it faces.
Beyond its direct purpose, shipbuilding influences a state's ability to build, repair, and maintain ships as well as its ability to stimulate economic growth.
The shipbuilding industry in South Korea has traditionally been considered a critical sector, contributing US$ 700 billion to its economic exports. However, the initial thought behind investing in the sector was not based on economic logic but on the growing threat from North Korea in the sea, as argued by Dong Keun Lee, an expert on South Korean shipbuilding. This initial aspiration was later translated to commercial shipping. From thereon, amidst increasing challenges, Seoul’s interests in shipbuilding continued through government support via subsidies and increasing orders for commercial ships. This helped South Korea navigate the extremely competitive sector but also helped cushion the effect of increasing labour costs, a persisting challenge.
Currently, South Korea's shipbuilding sector is dominated by three big shipyards: Samsung Heavy Industries, Hanwa Ocean, and HD Hyundai Heavy Industries, including other large and small players. All the big three play an important role in South Korea’s shipbuilding sector. It is estimated that this year, HD Korea shipbuilding, Hanwa Ocean, and Samsung Heavy Industries have respectively secured orders for 112 vessels worth US$ 12.1 billion, 26 vessels worth US$ 5.7 billion, and 22 vessels worth US$ 4.9 billion. This coincides with last year's optimism when the big three logged their first quarterly profits and maintained positive growth for the first time in 11 years (see Figure 1). Following that, this year, South Korean shipbuilding, for the first time since the fourth quarter of 2021, overtook China, showing the industry’s recovery (See Figure 1). This shift is likely due to three important factors: Focusing on building high-value ships, securing large orders, and moving away from dependence on pipelines to ships. Additionally, South Korea is looking to explore offshore markets to increase its market share in the military and civilian spaces, particularly in North America and Europe. For example, during the United States (US) Secretary of Navy's recent visit to South Korea, he touted Korea's shipbuilding capabilities and requested its ally South Korea to invest in the US shipbuilding industry to make it more competitive. Similarly, South Korea and its companies are also partnering with Norway, India, Germany, and Greece for shipbuilding cooperation and to facilitate innovation in its the industry, focusing on technology and sustainability.
South Korea is looking to explore offshore markets to increase its market share in the military and civilian spaces, particularly in North America and Europe.
Figure 1: First-half results of South Korea's major shipbuilders and ship parts makers (Unit: Billion won)
| Company | Revenue | Operating profit/loss | Operating profit margin (%) |
| HD Korea Shipbuilding & Offshore Engineering | 12,131.1 | 536.6 | 4.4 |
| Hanwa Ocean | 4819.7 | 43.2 | 0.9 |
| Samsung Heavy Industries | 4879.7 | 208.5 | 4.3 |
Source: Hyeon-Woo Oh
One of the biggest challenges to the South Korean Shipbuilding sector is coming from China, which is a market leader in tankers, containers and bulkers (see Figure 2). In the last decade, China has ramped up its dual-use shipbuilding capacity substantially (see Figure 3), with orders extending till 2029 and full yards till 2027. Currently, its top shipyards cover 62.9 percent of the global order book. This has given China an upper edge over its Korean counterparts. In 2023, for the first time ever, the Korea Institute of Industrial Economics (KIIE) Shipbuilding Report gave China first place over South Korea in overall competitiveness in shipbuilding based on five criteria—R&D and design, procurement, production, after-market services, and demand. Of these five, China has the upper hand in three, namely, production, after-services and demand.
Figure 2: Shipbuilding Orders Received by Value and Volume in Q1, 2024.
Source: Park Han-shin
To fix these challenges, South Korea is looking to expand by investing in strategic shipbuilding projects globally to bridge the gap. For instance, recently, South Korean shipbuilder Hanwa Systems and Hanwa Ocean invested US$ 100 million in the US Philly Shipyard ‘to further their strategies to expand their global defence and shipbuilding activities’; this step will help the US keep up with the growing demand of building tanker and container ships. Besides this deal, Hanwa was also looking at an Australian shipbuilder, which has gotten stuck due to regulatory concerns.
Figure 3: China Dominates Cargo Ship Market
Source: Ciaxin
Amidst adversity, South Korea is building on its strengths in research and development, design and procurement. Its strategy is to focus on integrating technology and segments where it holds the edge over its opponents, namely China, to gain a larger share of the sector. To support this vision, the government, in association with the big players, has announced its K-Shipbuilding Super Gap Vision 2040 “to secure and develop in green, digital, and smart areas”. South Korean Minister of Trade, Industry and Energy Ahn Duk-geun said, "the public and private sectors will work as one team to fully support the entire process from order to constriction to export.” The aim is to focus on three key areas: Eco-friendly fuel propulsion, integration of digital automation across stages, and secure smart technologies to commercialise fully autonomous vessels.
In the midst of the challenges, South Korea is focused on opportunities from new sectors that have mainly come from the next generation ships. As countries look towards new energy alternatives in ships and fuel, Seoul sees an opportunity to expand its reach. To take advantage, South Korea has launched the K-Shipbuilding Strategy for Next Generation Market dominance, focusing on three initiatives: To position itself as a leader in the shipbuilding industry, upgrade its domestic technological capabilities, and establish a framework to support these endeavours via financial and technological incentives.
The aim of the strategy is to “preemptively respond to internal and external challenges for Korea to take the lead in the next-generation shipbuilding market through a public-private joint strategy on creating future growth engines and heightening the global competitiveness of Korea’s shipbuilding industry.” The financial support for this strategy is backed by public-private sector partnerships, amounting to US$ 10.75 billion in refund guarantees (RG), which is a guarantee from the shipbuilder to the buyer if the contract is terminated, considered a critical part of the shipbuilding project. The RG for larger shipbuilders like HD Hyundai Heavy Industries and Samsung Heavy Industries is supported by civil banks. Some notable wins for South Korean shipbuilding are the next-generation carriers like the Ammonia Carriers, which have captured almost 80 percent of the orders from Seoul. Recently, it secured orders from Maersk to deliver 10 large ammonia carriers.
As countries look towards new energy alternatives in ships and fuel, Seoul sees an opportunity to expand its reach.
While gaining back its old shine, the South Korean shipbuilding sector faces mounting systemic challenges such as labour shortage. The sector is estimated to face a shortage of 14,000 workers and would require 45,000 additional workers to fulfil the current order. The government has recognised this challenge and made changes by liberalising its visa regime and increasing skilled workers' intake through E-7 and E-9 visas. For instance, the South Korean government facilitated the signing of a Memorandum of Understanding between Thailand and the top South Korean Shipbuilders to bridge the shortage of skilled shipbuilding workers. Still, some functional issues persist, such as skills gaps and workers' wages. The former remains a challenge with respect to training and skilling foreign workers. Due to the latter, many workers remain dissatisfied with their wages, leading to labour disruptions and even forcing many to move towards finding jobs in the semiconductor sector.
Amidst the labour shortage, the industry is attempting to leverage technology to increase productivity and bridge the skills gap. For instance, welding robots have given better results—better operating time and reduced human fatigue. However, the challenge persists as technology cannot fully replace human intervention. Therefore, as competition increases in the shipbuilding sector, China is expected to eat more into its market share. To offset this, South Korea is strengthening its existing advantages and capabilities, focused on integrating technology and sustainability into its shipbuilding strategy.
Abhishek Sharma is a Research Assistant at the Observer Research Foundation.
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Abhishek Sharma is a Research Assistant with ORF’s Strategic Studies Programme. His research focuses on the Indo-Pacific regional security and geopolitical developments with a special ...
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