As orders for tankers increase in the global shipbuilding market, South Korean shipbuilders are being watched closely as they leverage their eco-friendly technological capabilities to expand their global influence, competing against China, which emphasizes quick delivery and lower prices.
According to industry sources on Nov. 12, HD Korea Shipbuilding & Offshore Engineering recently signed a construction contract for two oil tankers with a shipping company based in Liberia. This achievement follows its successful contract for two oil tankers from an Oceania-based shipping company last month and is estimated to have a total contract value of approximately 454.4 billion won (US$344.11 million).
The significance of the recent order is underscored by China’s dominant market presence in the tanker industry. China has consistently held a substantial market share in the tanker sector, amplifying the importance of this recent contract.
To be sure, the decline in South Korea’s market share is largely influenced by shipbuilders securing a sufficient order backlog and focusing on profitability-driven selective orders. In fact, tanker construction costs per ton do not even reach half of those for liquefied natural gas (LNG) carriers and container ships, which are the segments that domestic shipbuilders are concentrating on.
However, recent trends in shipbuilding orders suggest that tankers are a market to keep an eye on. According to industry sources, the global new shipbuilding orders, measured by compensated gross tons (CGT), decreased by 23.5 percent as of October this year compared to the same period last year. In contrast, the orders for tankers saw a remarkable increase of 164.3 percent. This stands out when compared to the respective declines of 59.6 percent and 47.3 percent in LNG carriers and container ships during the same period.
While orders for LNG carriers and container ships have decreased due to factors such as an expanded order backlog, the tanker market has been expanding recently due to the increase in oil transportation volume and the subsequent rise in tanker freight rates, according to industry analysis.
Industry experts expect the trend of increasing tanker orders to continue in the near future. This is due to the ongoing shortage of supply compared to demand, with the maximum volume of cargo relative to order backlogs reaching a historic low of around 5.9 percent. In fact, it is anticipated that the potential demand for 55 very large crude carriers (VLCC) and 166 medium-sized AFRAMAX-class ranging from 80,000 to 120,000 tons tankers will lead to market orders by 2026.
The industry expects that domestic shipbuilders in South Korea will resume their tanker orders in earnest from next year. While China has secured orders by offering lower prices and faster delivery times in the past, the competitive edge in terms of delivery times is weakening as Chinese shipyards are filling up their slots or docks. Moreover, there is a growing demand for environmentally friendly vessels, such as those powered by alternative fuels, which highlights the importance of technological capabilities over pricing.
It has been recently revealed that HD Korea Shipbuilding & Offshore Engineering is constructing an oil tanker that can be converted into a methanol-ready vessel, which is a ship that can be modified to run on methanol, for a shipping company in Oceania.