Korean Shipbuilders Keep Eye on Future

The Korea’s shipping industry, the world largest, is preparing itself for the future.

The domestic shipping industry has been sweeping the first seven places across the world in terms of the amount of orders received and the rest amount of them.

However, China is also formidable as it is running right after Japan, which is tailing Korea.

Korean shipping companies are accelerating their efforts to heighten added value by developing Liquefied Natural Gas (LNG) ships and building high value-added cruise ships.

The shipping industry is one of the leading export industries in Korea. Last year, it ranked fifth following semiconductors, vehicles and wireless telecommunication equipment in order in terms of export amounts by industry.

In particular, the industry’s trade balance surplus was $16.1 billion, which makes up 69 percent of the total Korean trade balance surplus. That is three times bigger than that of semiconductors ($4.9 billion).

As the amount of orders placed has increased recently, domestic shipping companies are receiving orders selectively, first from high valued ships such as LNG ships and crude oil drill ships.

However, there is a long way to go.

Most shipbuilding technologies are domestically sourced, but design drawings for LNG ships are being bought from GTT, a French company. Royalties paid for such ships are usually about nine billion won per ship. Around 30 such ships are being built a year in Korea; the royalties amount to some 270 billion won a year.

Three leading shipping companies such as Hyundai Heavy Industries, Samsung Heavy Industries, Daewoo Shipbuilding and Marine Engineering, and the Korea Gas Corporation have set a goal to domestically produce LNG ship design technology by 2009 and have started doing research to that end beginning in 2004. The invested research funds so far amount to 18.6 billion won in total. Research teams plan to complete technology development within this year and verify whether the technology can be applied starting next year.

If the research succeeds, Korea will become the second country to hold the technology after France. The U.S. and Norway have also jumped into this research.

Yang Young-myung, a chief researcher of the Korea Gas Corporation, said, “The key to the design technology is to build a container to carry LNG at the ultra-low temperature of minus 122 centigrade. Success depends on whether we can make special folds that can endure ultra-low temperature without exploding.

Jo Yong-jun, a research center director of Shinyoung Securities said, “The shipping industry is one of the important industries which will lead Korea in the long run. Investment in research and development should be increased to widen the technology gap further.

The cruise ship market, which builds high-value ships, is also an untapped area for Korean shipping companies.

A cruse ship dubbed as a “floating hotel” costs 500 billion – one trillion won per ship and is three times as expensive as a large LNG ship. The market size amounts to 10 trillion won a year and is growing by more than five percentage points yearly.

European shipyards are dominating the cruise ship market because the ability to embellish the interior is necessary as well as ship building technology. The Japanese Mitsubishi shipyard tried to build a cruise ship, but suffered a loss of hundreds of billions of won and gave it up.

Samsung Heavy Industries in the Korean shipping industry is the most aggressive-

A passenger ship development team of Samsung Heavy Industries has been researching cruise ships since 1996, and has been receiving orders for large passenger ships, which are the precursors to cruise ships, and building them.

Ju Sang-ryul, an executive director of Samsung Heavy Industries, said, “Considering the reality that China is hot on our tail in the merchant ship area, the cruise market is a blue ocean that Korean shipping companies have to develop. Our company plans to receive orders for cruise ships around 2008 and start building them in earnest around 2010.”

Hyo-Lim Son aryssong@donga.com