Invest KOREA

Korea's shipbuilding industry, which mainly receives orders for high-value-added ships, is touted for the world-class technological competitiveness. The country's global order share of LNG carriers has reached 75% and that of large and eco-friendly ships maintains No.1 title, taking initiative in the high-value-added vessel market. Meanwhile, with the global decarbonization policy underway, no later than 2023 ships are subject to the Energy Efficiency Existing Ship Index (EEXI) and Carbon Intensity Indicator (CII), which are environmental regulations of the International Maritime Organization (IMO). Accordingly, ships that do not meet the EEXI and CII are required to pay penalties related to limited engine power and operation under restriction. As penalties hinder the economic efficiency of ships, the early scrapping of aged ships is projected to be vitalized. And due to the effect of environmental regulations, it is expected that diversion demands for eco-friendly ships go into full swing.

The shipbuilding market analysis institute, Clarksons Research, forecasts that a stable order market with an annual average of 40 million CGT or more would be formed by 2030 driven by an increase in throughput and demand for diversion to eco-friendly ships. On top of that, orders for not only LNG carriers and methanol-powered ships but carbon-free ammonia-powered ships are likely to jump for the long haul. The ship fuel diversion has already surfaced in the market. Of the 2022 contracts, the ratio of vessels with alternative fuels (option included) marked a record-high of 42 percent. While LNG is widely known as alternative fuel ship, we cannot ignore the significant number of contracts that include Ammonia Methanol Ready, a retrofit option that can be later diverted to either methanol-powered ships or ammonia/methanol engines. The Korean shipbuilding industry, one-step ahead of China and Japan, has won many orders for green high-value-added vessels to maintain competitiveness. In terms of LNG, the industry is already at the world's top level, and Hyundai Heavy Industries is seeing results as evidenced by winning the orders for 19 methanol-powered ships from the Danish shipping company Maersk. Also, Korea has secured a great deal of the Ammonia Methanol Ready ship orders and therefore, the country, backed by the technological competitiveness, seeks new opportunities in the changing market on environmental regulations.

Ships, a traditional export item, are under a system in which shipping companies place an order with shipbuilders. Most of the demand comes from overseas shipping companies and most of production prices come from exports. Shipbuilding is an industry of high foreign exchange earning rates and is recognized as one of key national industries along with defense industry. Against this background, the Korean government considers the current times—with a better market condition beyond the protracted economic slump—a high time in which the Korean shipbuilding industry with competitiveness will be able to create the super gap by enhancing competitiveness. Such thoughts led Seoul to announce a strategy to maintain the super gap in the industry on Oct. 19, 2022. Through the strategy, Korea set expected effects including the achievement of a 75% share of high-value-added ships by 2030, the commercialization of autonomous ships and zero-carbon ships, and the achievement of a 90% localization of eco-friendly ship equipment and materials.

Growing demands for eco-friendly ships led by the carbon-neutral trend factors in new opportunities, but also poses a danger in that competition with China in high-value-added ships may get fierce, and the rivalry of technology development and standardization with the EU, Japan and other advanced countries over future technologies such as carbonless autonomous ships could become tougher. Accordingly, the government is slated to pursue localization of main equipment and materials highly reliant on foreign markets, such as cargo tanks to maintain the super gap in LNG carriers. At the same time, it will cope with the IMO environmental regulations and plans to invest in attaining the carbon-free ship’s core technology as well as other technologies such as on-board CO2 capturing and storing technology, which reduces carbon emissions from ships and rotor sails that upgrade ship efficiency to secure preemptive technology.

Meanwhile, the Korean shipbuilding industry needs to expand workforce since the number of design and production workers in the industry has fallen due to long-term restructuring. Thus, the government is to pursue workforce securing policies such as employing foreign laborers, and to invest KRW 280 billion in developing and providing Smart Yard technology to address labor shortage through digital transition, and ratchet up productivity and realize safe working environments.