Less Lucrative
France’s GTT, which receives royalties for cargo holds for liquefied natural gas (LNG) carriers worth hundreds of billions of won built by Korean shipyards, recorded profit growth of over 20 percent in the first quarter of 2023. Despite receiving large-scale LNG carrier orders, Korean shipbuilders are expected to continue to lose money or barely turn a profit in the first quarter due to the impact of huge royalty payments. Under these circumstances, Korean companies are still far from attaining technological independence in cargo holds.
GTT announced on April 20 (local time) that it posted sales of 79.89 million euros (approximately 116.9 billion won) in the first quarter. It grew by 17.2 percent compared to the same period of last year. In the LNG/ethane carrier sector, which is a key source of revenue, it announced that it generated royalty income of 66.24 million euros (96.9 billion won), up 23 percent over the past year. About 90 percent of GTT’s LNG cargo hold royalties come from Korean shipyards. This means that the three major Korean shipbuilders paid around 90 billion won in royalties to GTT in the first quarter alone.
GTT has the original technology for membrane-type LNG cargo holds. It is a technology that has become a de-facto standard around the world as it can carry more LNG than the past spherical Moss-type LNG cargo hold and rarely causes safety problems. Global ship owners stick to the use of GTT membrane technology thanks to decades of its technological reliability.
As it monopolizes the LNG cargo hold market, it has enormous price negotiation power. Korean shipbuilders pay about 5 percent of a ship price as the GTT cargo hold technology license fee.
Korean shipbuilders are barely making ends meet despite receiving large LNG carrier orders, paying huge royalties on top of rising raw material prices. According to FnGuide, securities firms expect Daewoo Shipbuilding & Marine Engineering (DSME) to record an operating loss of 41.7 billion won in the first quarter of 2023. Since 2021, it has posted losses in every quarter. In the first quarter, HD Hyundai Heavy Industries (HHI) is expected to record a surplus in the 40 billion won range in the black.
As GTT’s market dominance grows, the Korean Fair Trade Commission (FTC) puts on the brakes, and the Korean shipbuilding industry is also promoting the localization of cargo holds. But the industry still has a long way to go in the localization of cargo holds. The FTC came to the conclusion that GTT was abusing its market dominating power, so it ordered GTT to stop tying technology licenses and technical support services. The case went all the way to the Supreme Court and recently ended with GTT losing the case. “Thanks to the court ruling, we are now able to purchase licenses and technical support separately, but GTT still has huge negotiating power, so there are no big practical benefits from the ruling yet,” an industry insider said.
In order to reduce royalties worth hundreds of billions of won each year, Korean shipbuilders have started to develop in-house cargo holds, but they are in trouble. KOGAS and the three shipbuilding companies delivered their first LNG carrier in 2018 equipped with Korea’s first LNG cargo hold, KC-1. However, as a cold spot phenomenon occurred and accordingly cold air from the cargo hold was transferred to the hull of the ship, the carrier had to repeatedly undergo repairs. KOGAS, SK Shipping, and Samsung Heavy Industries, which built the ship, are at loggerheads in court over this matter. However, recently, a technical judgment has been made that the cargo hold can run at six degrees or higher, expanding anticipation for cargo hold localization in the long term.
GTT, which has relied on Korean shipbuilders for 90 percent of its cargo hold license fees, is also trying to expand its license sales to Chinese shipbuilders. Last year, GTT decided to issue cargo hold licenses to them. “GTT is pumping up its license sales pitch to Chinese shipyards while beginning cargo hold design for four LNG carriers for a Chinese shipbuilder in April.”