Reflecting Intense Competition
The South Korean shipbuilding industry is in shock after it has lost the world’s largest container ship deals to Chinese companies. It is a symbolic event that shows the two countries’ intense competition across all of industries, marking the 25th anniversary of their diplomatic relations.
According to shipbuilding industry sources on August 20, France’s CMA CGM recently signed a letter of intent (LOI) with two Chinese shipyards - Hudong-Zhonghua Shipyard and Shanghai Waigaoqiao Shipbuilding – to build nine 22,000 TEU container ships. South Korea’s big three shipbuilders – Hyundai Heavy Industries, Samsung Heavy Industries and Daewoo Shipbuilding & Marine Engineering – participated in the bid. Hyundai Heavy competed for the deal until the last minute but Chinese shipbuilders won the contract.
The deal for nine ships total US$1.44 billion (1.6 trillion won). An official from the shipbuilding industry said, “South Korean companies had swept large container ship deals in the global market but they now feel embarrassment that not only the market of low-end ships but also ultra large and high value added ships are being eaten into by China.”
The deal is to build nine ultra large container ships which have dual-fuel propulsion systems that can operate on either liquefied natural gas or fuel oil. With stricter international regulations on the emission from ships, including sulfur oxides, domestic shipbuilders expected to win new orders of ultra large and eco-friendly high value added ships. However, they unexpectedly lost to Chinese companies. The shipbuilding industry, which is already suffering from a lack of business, raises concerns that they can keep falling behind Chinese firms in the future. A LOI is a document outlining an agreement between two or more parties before the agreement is finalized. However, South Korean companies has a very small chance of winning a partial order out of the nine.
Domestic shipbuilders won the deal of 2.83 million CGT in the first half of this year but fell behind China with 133 ships or 2.9 million CGT. An official from the shipbuilding industry said, “In short, even foreign container shippers have admitted that Chinese shipyards’ technology and price competitiveness have caught up with Korea. South Korean shipbuilders used to rank first to seventh in the top 10 list. However, only big three made the top 10 list now with many Chinese and Japanese firms included.”