Is China's pursuit too aggressive? The South Korean government launches a “super” strategy for the shipbuilding industry
2022-10-19 09:00
To maintain South Korea's leading position in the global shipbuilding industry in the face of intense competition from China, the South Korean government will provide comprehensive support to the shipbuilding industry by 'concentrating all policy efforts.'
On October 19, the South Korean government convened an emergency meeting of economic ministers, including officials from the Ministry of Employment and Labor, the Ministry of Economy and Finance, the Ministry of Trade, Industry and Energy, and the Fair Trade Commission, to announce comprehensive policy support in areas such as technological development, human resources, finance, institutional improvement, industrial chain construction, and cooperation between large, medium, and small enterprises to ensure the global competitiveness of the South Korean shipbuilding industry.
At the meeting, the Ministry of Trade, Industry and Energy released the 'Strategy to Secure a Super Gap in the Shipbuilding Industry,' proposing to expand the severely insufficient human resources compared to order performance, secure core technologies for environmental protection and digital transformation in advance, and seek new competitive advantages for the South Korean shipbuilding industry by entering new growth areas. The background for this strategy is that the South Korean shipbuilding industry achieved its highest order backlog in eight years last year, at 1,746 CGT (Corrected Gross Tonnage), but has been criticized for persistent shortages of production line and technical personnel, as well as the declining competitiveness of small and medium-sized supporting enterprises.
The 'Strategy to Secure a Super Gap in the Shipbuilding Industry' proposes to increase South Korea's market share in high-value-added vessels from the current 64% to 75% by 2030 to secure dominance in the future ship market. It also plans to promote the domestic production of core technologies for LNG carriers and the development of carbon reduction and zero-carbon ships, aiming to complete the demonstration construction of liquid hydrogen carriers from 2024 to 2029 and achieve commercialization ahead of schedule.
Furthermore, a performance verification center will be established in Ulsan next month to verify core technologies such as the International Maritime Organization (IMO) Level 3 autonomous navigation technology for surface vessels (remote control without crew onboard). Verification will begin with small vessels, aiming for commercialization of unmanned autonomous navigation vessels by 2026. To this end, the Ministry of Trade, Industry and Energy plans to work with the Ministry of Oceans and Fisheries to promote the establishment of relevant basic laws.
The strategy also proposes to vigorously promote the conversion of old LNG carriers into floating storage regasification units (LNG-FSRUs). Joo Young-joon, director of the Industrial Policy Office at the Ministry of Trade, Industry and Energy, stated: “Due to the increase in LNG demand caused by the Russo-Ukrainian conflict, the demand for converting LNG sea transportation to onshore FSRU supply is increasing significantly. The government will respond to the demand in the FSRU conversion market through public-private partnerships, including technology and equipment transfers, targeting small and medium-sized shipbuilding companies.”
In terms of human resource security, the strategy proposes to improve systems aimed at extending special working hours and securing foreign workers, led by the Ministry of Employment and Labor. Discussions are currently underway on a plan to extend the temporary extension of special overtime for manufacturing industries from a maximum of 64 hours per week and 90 days per year to 180 days.
In addition, the strategy plans to expand the quota for foreign workers in the shipbuilding industry to secure skilled foreign labor. The overall quota for skilled workers will be increased from the current 2,000 to 3,000 next year, with no more than 200 allocated to the shipbuilding industry.
In terms of financial policy, to strengthen the export competitiveness of the South Korean shipbuilding industry, the strategy proposes to provide financial support such as advance payment guarantees (RGs) and stable raw material supplies to shipbuilding companies, and to expand exports of small and medium-sized shipbuilding companies and supporting equipment companies. Through consultations among financial institutions, it will explore the possibility of adding available RG credit lines before the end of the year and provide support using the Korea Trade Insurance Corporation's special RG guarantee system. Market conditions will be fully considered when adding credit lines to expand credit limits.
Regarding the construction of the upstream and downstream industrial chain, the strategy proposes to strengthen symbiotic cooperation between large and small and medium-sized enterprises by studying and improving a more self-regulating price negotiation method between the steel and shipbuilding industries, depending on the supply and demand of steel. In addition, it plans to support the transfer of core environmental protection technologies from large shipbuilding companies to small and medium-sized shipyards.
To support small and medium-sized supporting equipment companies, the strategy proposes to include these companies in the parts supplier list from the R&D planning stage, developing related technologies in a package manner with design, development, and performance verification running concurrently, while also providing technical consulting and overseas marketing support.
Jang Young-jin, Vice Minister of Trade, Industry and Energy, stated: “The global shipbuilding market is entering a period of full recovery, which presents an opportunity for the South Korean shipbuilding industry, which possesses the world's highest technological competitiveness. The government will concentrate all policy efforts to achieve the super gap strategy for the South Korean shipbuilding industry.”
Relevant experts in the South Korean shipbuilding industry stated that China is currently the biggest competitor, and is rapidly catching up with the support of its government, which could pose a threat to South Korean shipbuilding companies currently facing financial difficulties. The lack of a long-term strategy in favor of short-term responses among South Korean shipbuilding companies is a major concern. The South Korean government's release of the 'Strategy to Secure a Super Gap in the Shipbuilding Industry' aims to secure dominance in the future ship market and strengthen the export competitiveness of the shipbuilding industry. Following the release of this strategy, the South Korean shipbuilding industry is expected to receive comprehensive support in areas such as technological development, human resources, institutional improvement, and finance.
An official from the Ministry of Trade, Industry and Energy stated: “In the 1990s, the South Korean shipbuilding industry decisively focused on technological development, laying the foundation for its rise to the world's number one position in the early 2000s. Currently, the South Korean shipbuilding industry should more actively utilize the opportunities presented by the expansion of the environmentally friendly ship market to expand its achievements and achieve the goal of a 'super gap in shipbuilding industry competitiveness.'
Yang Jong-su, chief researcher at the Overseas Economic Research Institute of the Export-Import Bank of Korea (KEXIM), emphasized that in the context of the global carbon neutrality era and the strengthening of environmental regulations in the maritime industry, the technologically advanced South Korean shipbuilding industry must prioritize a long-term strategy to further widen the gap with China and Japan. This involves accelerating the development of new technologies for environmentally friendly and intelligent ships, developing clearer and more specific market marketing strategies, and guiding global ship owners to adopt a long-term perspective in formulating their shipping strategies, thereby leading the global shipbuilding and shipping market. (Wang Chu)
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