[Super Gap K Shipbuilding] The Market Demands... Money Flowing into Eco-Friendly Ships

(Lower) LNG Ship Order Scale 48 Trillion Won
Ship Order Volume 61%, Alternative Fuel
'Establishing a Stable Industrial Ecosystem' Task

Editor's NoteMoney and political consensus around the world are converging on carbon neutrality. The shipbuilding industry, which belongs to the high carbon-emission sectors, is no exception. Major shipowners in Europe and elsewhere are demanding eco-friendly vessels. The key to surpassing China, which has already overtaken Korea, lies in eco-friendly ships requiring breakthrough technologies. This is why domestic shipbuilders have established dedicated sustainability committees within their boards and are fully committed to developing eco-friendly ship technologies. Together with the government, they have formed the 'Shipbuilding Industry Carbon Neutrality Committee' to devise core technology development strategies for ecosystem greening. As orders boom centered on high value-added and eco-friendly ships, expectations for a return to profitability are growing. This article takes an in-depth look at the current status and future of domestic shipbuilders preparing for the carbon-neutral era.

[Asia Economy Reporter Choi Seoyoon] Money is flowing into eco-friendly ships. Overseas major shipping companies are increasing orders for eco-friendly vessels to comply with the International Maritime Organization (IMO) environmental regulations. The order volume for liquefied natural gas (LNG) carriers, a representative eco-friendly ship, amounts to 48 trillion won (39 billion USD, based on last year). This presents a revival opportunity for domestic shipbuilders who possess world-class LNG carrier construction technology. However, chronic labor shortages and dependence on some key overseas equipment remain unstable issues in the industry ecosystem that need to be addressed.

Clarkson Research, a UK-based shipbuilding and shipping market specialist, recently reported that "61% of last year's ship orders were for alternative fuel vessels." Alternative fuel vessels refer to ships that use fuels emitting fewer harmful substances than traditional bunker fuel exhaust. Using such fuels classifies the ship as eco-friendly. Of the 61%, more than half are dual-fuel vessels using LNG, recognized as an eco-friendly fuel. Methanol accounts for 7%, LPG 1.1%, and battery hybrid vessels 1.2%.

Eco-friendly ships require highly complex construction technology, making them expensive. The newbuilding price for a large LNG carrier is 300 billion won (248 million USD, as of December last year) per vessel. This is more than twice the price of a large crude oil tanker newbuilding (approximately 148.4 billion won). Although the total ship order volume (based on standard tonnage) decreased by 20% compared to the previous year, the average price of newly built ships rose by 15%.

Korean shipbuilders captured 70% of the global large LNG carrier orders last year. Korea also surpassed China by securing more than half (54%) of the global orders for LNG-powered low-carbon ships.

Demand for eco-friendly ships to reduce carbon emissions is expected to continue growing. From this year, ships must comply with the IMO's Energy Efficiency Existing Ship Index (EEXI) and Carbon Intensity Indicator (CII) standards. Clarkson Research analyzed that "the share of LNG carriers will remain robust this year as it did last year," and "the market share of Korean shipbuilders will increase."

Maintaining world No.1 competitiveness in the eco-friendly ship sector while simultaneously establishing a stable industrial ecosystem is a common challenge for domestic shipbuilders. The dual structure problem in shipbuilding has persisted for over 30 years. There is an extreme gap in wages and employment stability between primary contractors and subcontractors. The subcontractor union strike at Daewoo Shipbuilding & Marine Engineering in June-July last year also stemmed from this dual structure. Since the long-term recession starting in 2014, the workforce has decreased by more than 50%, but with the recent market upturn and rapid increase in orders, there is a shortage of workers to build ships. The government decided to prioritize foreign workers for the shipbuilding industry to fill the labor gap, but complaints have arisen on-site, stating that this does not help solve the root causes of labor shortages such as entrenched low wages.

Experts view dependence on some key overseas equipment and the lack of repair and modification shipyards for medium and smaller vessels as weaknesses of the domestic shipbuilding industry besides labor shortages. The Korea Institute for Industrial Economics & Trade recently stated in its report "Diagnosis of Competitiveness by Value Chain in the Shipbuilding Industry and Policy Directions" that China excels over Korea in the service sector, including repairs due to accidents or malfunctions after new ship construction and during operation, as well as regular and intermediate inspections.

Lee Eun-chang, a research fellow at the Korea Institute for Industrial Economics & Trade, said, "The domestic shipbuilding industry is likely to fall behind competitors in the eco-friendly transition due to an unstable industrial ecosystem and lack of domestic demand." He added, "To lead the new market, it is necessary to develop equipment, systems, and platforms for eco-friendly ships," and "During the technology commercialization process, domestic equipment should be installed to secure reliability in the core equipment market."