[Yang Nakgyu's Defence Club] Domestic Shipbuilding Industry Sees Tailwinds... Three Key Challenges Remain

Despite Easing of Chinese Sanctions and U.S. Approval of Nuclear Submarines
Challenges Remain, Including Japanese Competition and Uncertainties in U.S. Investment Returns

While positive developments such as the lifting of sanctions on Hanwha Ocean’s Chinese subsidiary and the approval for the construction of nuclear-powered submarines in the United States are providing a boost to the domestic shipbuilding industry, there are still many hurdles to overcome. There are concerns that Japanese shipbuilders could gain an advantage based on their cooperative relationship with the United States, and that South Korea could be caught in the crossfire of the maritime power struggle between the United States and China. When it comes to shipbuilding investments in the United States, local productivity management is considered a key variable.

A red sun is rising over a liquefied natural gas (LNG) carrier under construction at the Hanwha Ocean Okpo Shipyard yard dock in Geoje, Gyeongnam. Recently, the United States has been focusing on South Korea as a strategic partner to rebuild its outdated shipbuilding industry. According to the shipbuilding industry revitalization policy strongly promoted by the Trump administration, the United States is expected to order up to 448 vessels, including merchant ships, liquefied natural gas (LNG) carriers, and naval warships, by 2037. Photo by Kang Jin-hyung

According to the fact sheet on the U.S.-China trade agreement released on November 3, China has decided to lift the retaliatory measures it imposed in response to the U.S. “Section 301” investigation into China’s maritime, logistics, and shipbuilding industries, and will also lift sanctions imposed on various shipping companies. Previously, on October 14, China placed five U.S. subsidiaries of Hanwha Ocean-Hanwha Philly Shipyard, Hanwha Shipping, Hanwha Ocean USA International, Hanwha Shipping Holdings, and HS USA Holdings-on a sanctions list banning transactions with Chinese companies, citing their cooperation with the U.S. Trade Representative’s Section 301 investigation.

If China lifts these sanctions, the U.S. shipbuilding industry could regain momentum. President Trump also stated, “South Korea will build nuclear-powered submarines right here at the excellent Philadelphia Shipyard,” adding, “The U.S. shipbuilding industry will soon experience a Big Comeback.” If the United States proceeds with large-scale orders for merchant ships and naval vessels, domestic shipbuilders are expected to secure a substantial volume of contracts. In particular, President Trump’s announcement that nuclear-powered submarines will be built at the Philadelphia Shipyard is expected to benefit the South Korean shipbuilding industry.

However, Japan’s efforts to counter this are expected to be significant. While South Korea currently leads in shipbuilding competitiveness, it may lose some ground due to international relations and political considerations. Given the long-standing, friendly U.S.-Japan relationship-including the Mutual Cooperation and Security Treaty signed in 1960 and their extensive experience in defense cooperation and joint development-there is a possibility that Japan could gain an advantage over South Korea in future contract competitions.

This year, Imabari Shipbuilding and Japan Marine United, the top two shipbuilders in Japan, formed a joint venture, emerging as a formidable competitor to the South Korean shipbuilding industry. The combined shipbuilding volume of these two companies would immediately surpass Hanwha Ocean, making them the fourth largest in the world. Analysts believe this marks the beginning of a full-scale “chase” by the Japanese shipbuilding industry to catch up with South Korea. While the United States is attempting to revitalize its shipbuilding industry and South Korea is leveraging its shipbuilding sector as a bargaining chip in negotiations with the U.S., Japan, having lost its competitive edge, had not made significant efforts until now. Recently, however, the Japanese government announced its intention to support the reconstruction of its shipbuilding industry, aiming to develop it into a “negotiation card” in U.S.-Japan trade talks.

Hanwha Ocean also faces its own challenges. South Korean shipbuilders’ investments in the United States are hindered by outdated local infrastructure, high labor costs, and a shortage of skilled workers. The average annual salary for U.S. marine engineers is about 145 million won, 1.7 times higher than in South Korea, and the wage for welders is approximately 90 million won, twice as high as in South Korea. In South Korea, overtime and holiday work are common and widely accepted to meet delivery deadlines, but in the United States, there is considerable resistance to overtime and special shifts.

In its shipbuilding industry review report, NICE Investors Service stated, “The success of domestic shipbuilders’ entry into the U.S. market depends on how efficiently they can manage productivity by overcoming differences in labor costs, workforce, and work culture. The ability to train local workers and establish process management systems will be key to long-term competitiveness.”

Securing a stable supply of uranium fuel is the biggest challenge in building nuclear-powered submarines. President Trump has only announced the approval for the construction of nuclear-powered submarines, without mentioning details such as uranium supply plans. However, since President Trump has approved the construction of nuclear-powered submarines, it is highly likely that a plan will be developed to supply uranium to South Korea. For South Korea to receive uranium from the United States, the nuclear cooperation agreement must be revised. Officially amending the agreement requires approval from the U.S. Congress and ratification by the National Assembly of South Korea, a process that could take several years.

An official from the defense industry commented, “Domestic companies have never built large submarines or small nuclear reactors before. Considering that it takes about ten years to develop a new warship, building a nuclear-powered submarine could take even longer.”