S.Korea’s mid-tier shipbuilders sail into new supercycle as China struggles

BUSAN – On a sunny May morning in Busan’s Yeongdo shipyard, the clang of steel and the rhythmic pounding of welders was telling the new story of a shipyard once cast adrift.

Workers swarmed over the frames of seven specialty vessels: four air-cushion vehicles, two high-speed patrol boats and a fisheries guidance vessel. Next to them, a 9,000 TEU container ship, commissioned by shipping giant HMM Co., was undergoing final outfitting.

“This is the busiest we’ve been in specialty vessels since the shipyard opened in 1937,” said an executive at HJ Heavy Industries Co., formerly Hanjin Heavy Industries.

Once the world’s fifth-largest shipbuilder by tonnage, HJ saw its fortunes capsize during the 2008 global financial crisis. By 2012, its vast shipyard sat eerily silent, operating at zero capacity.

More than a decade later, HJ became emblematic of an unlikely resurgence among South Korea’s mid-sized shipbuilders.

Alongside peers Daehan Shipbuilding Co. and K Shipbuilding Co., the company has carved a niche strategy that bets on specialization, technology and geopolitical tailwinds – and it's paying off handsomely.

TARGETING NICHES

After the collapse of its ambitious 1.9 trillion won ($1.3 billion) Philippine Subic Bay shipyard project, HJ recalibrated toward mid- and small-sized specialty vessels.

While industry behemoths like HD Hyundai Heavy Industries Co. and Samsung Heavy Industries Co. chased mega-projects such as destroyers and LNG carriers, HJ focused on markets they overlooked: patrol boats, air-cushion vessels and eco-friendly ships.

Its success has been built on a blend of pragmatism and foresight.

By targeting ships that can be assembled on land without requiring costly docks, and by doubling down on environmentally sustainable vessels – including its LNG bunkering ship order in February, its first in 11 years – HJ sidestepped direct competition with both domestic and Chinese shipyards.

Later this year, HJ plans to expand into the lucrative US Navy maintenance, repair and overhaul (MRO) segment, further diversifying its portfolio.

“We’ve learned that survival in this business is about agility, not size,” said the HJ executive.

DAEHAN: FROM SUBCONTRACTOR TO TANKER TITAN

Daehan Shipbuilding, too, has rewritten its narrative.

Once relegated to supplying blocks to Daewoo Shipbuilding & Marine Engineering (DSME) after it was put under a debt workout in 2009, Daehan, located in Haenam, South Jeolla Province, has since ascended to global dominance in the Aframax tanker market – mid-sized vessels capable of carrying 600,000 to 800,000 barrels of oil.

With a 12.6% market share, Daehan now boasts the world’s highest technical capacity in that segment.

Unlike many rivals, Daehan has vertically integrated its operations – from steel preprocessing to block manufacturing – all within its 3.7 million square meter facility.

This self-reliance shielded the company from spiraling subcontracting costs during industry upswings, helping it post an enviable operating margin of 14.7% last year.

An initial public offering planned for later this year will provide fresh capital for both yard expansion and R&D into new ship types.

“We no longer see ourselves as mid-sized,” said a senior company executive. “In our segment, we are the benchmark.”

K SHIPBUILDING: FOCUS ON NEXT-GENERATION TANKERS

K Shipbuilding, the reborn STX Offshore & Shipbuilding, has also found its formula for survival and success.

By focusing on mid-sized tankers and gas carriers, the company has innovated aggressively, including developing the world’s first medium-range (MR) tanker capable of running on both LNG and diesel.

The company holds 141 patents related to these vessels and commands a dominant 19.1% global share in the larger Panamax-class (74,000-ton) tanker segment – a vessel type optimized to pass through the Panama Canal.

"The replacement cycle for aging Panamax tankers is upon us," said a company executive. “The big three Korean shipbuilders have been preoccupied with ultra-large tankers and containerships, leaving the mid-sized segment open for specialized players like us.”

RIDING TRICKLE-DOWN OF A SUPERCYCLE

What was once an existential crisis has turned into a historic opportunity.

After a brutal 2021 that saw combined losses of nearly 3,800 billion won across the three mid-sized shipbuilders – HJ, Daehan and K – they swung to their first profit in 14 years, posting a combined operating profit of 198.3 billion won in 2024.

The three are forecast to report an operating profit approaching 420 billion won this year, with some analysts betting on 600 billion won next year as ship prices are on a rising trend.

Combined orders for the trio surged to $2.4 billion last year from $660 million in 2020.

Analysts said the US government’s decision to impose port fees on Chinese-built ships has accelerated the exodus of foreign shipowners from Chinese yards.

Daehan said it saw a tripling of inquiries for container ships, including an imminent contract for four 9,000 TEU vessels – the largest order in its history.

“Once neglected in the shadows of the shipbuilding titans, the mid-tier players now stand at the forefront of the upcoming supercycle,” said an industry executive.

Write to Jin-Won Kim and Woo-Sub Kim at jin1@hankyung.com

In-Soo Nam edited this article.