Korea, US to expand cooperation in shipbuilding sector

South Korea and the US plan to set up a working group to expand their cooperation in the shipbuilding industry from warships to commercial vessels.

Washington is reportedly seeking liquefied natural gas (LNG) carriers and icebreakers for the Northern Sea Route in addition to naval vessels, government and industry sources in Seoul said.

“We discussed with Secretary Lutnick measures to strengthen bilateral partnership in shipbuilding and high-tech industries,” South Korea’s Minister of Trade, Industry and Energy Ahn Dukgeun told reporters in Washington DC, referring to US Commerce Secretary Howard Lutnick.

Ahn and Lutnick met for the first time since US President Donald Trump took office.

To develop the discussions on the cooperation, South Korea is set to form a task force, which includes the ministries of industry, foreign affairs and defense, while the US is poised to establish a similar body led by the commerce department.

The two countries also plan to set up a consultive group on overall energy and trade sectors.

BARGAINING CHIP FOR TARIFF EXEMPTION

Officials in Washington DC were known to have asked South Korean shipbuilders, which have already secured orders for the next three to four years, to meet US demand first, according to sources in Seoul.

South Korea may use the request as leverage to ask the US for tariff exemptions, the sources said.

Ahn met with Lutnick, Interior Secretary Doug Burgum and US Trade Representative Jamieson Greer to request a tariff exemption in Washington for three days beginning Feb. 26.

Ahn also said tariffs on South Korea, if any, should not be on less favorable terms than other countries.

GROWING DEMAND FOR TANKERS

The US officials were eager to start expanding the partnership in the shipbuilding sector.

Trump plans to embrace fossil fuels, which is expected to increase demand for crude oil tankers made by South Korean shipbuilders, including HD Korea Shipbuilding & Offshore Engineering Co., Hanwha Ocean Co. and Samsung Heavy Industries Co.

The global tanker market is dominated by Chinese shipyards, which won 60-70% of orders for 444 new crude carriers last year.

Demand for South Korean tankers is likely to increase if Trump restricts the use of Chinese-built vessels for oil transportation, industry sources in Seoul said.

Icebreakers are also needed for the Alaska LNG project and the US push for the Northern Sea Route, according to the sources.

Trump repeatedly vowed to gain control of Greenland to win the Arctic hegemony, which is expected to demand for the special-purpose ships or boats designed to move and navigate through ice-covered water.

In South Korea, Hanwha and Samsung have technology for ice-breaking LNG carriers, which are typically about 1.5 times more expensive than regular LNG tankers with an average price tag of 350 billion won ($239.2 million) per ship.

Demand for container ships and bulk carriers made in South Korea is also likely to rise if Washington bans the use of Chinese-made vessels for trade with the US.

TECHNOLOGY TRANSFER

The U.S. aims to strengthen the U.S. shipbuilding industry through technology transfer, in addition to buying vessels from South Korea.

US Navy Secretary nominee John Phelan stressed the need to work with its allies to use their shipbuilding capacity amid an intensifying US-China rivalry.

“I think that we have to definitely look at expertise and skill that foreign partners have. Whether that means they build components, we need to look at that,” he said during the hearing at the Senate Arms Services Committee on Feb. 27.

“Hanwha has recently bought the Philadelphia shipyard. So they are going to look at enhancing that and making that better. So bringing their capital and skill sets here, I think, would be important. I think this is a very critical thing,” he added.

Hanwha acquired Philly Shipyard for $100 million last year.

ISSUES TO BE SOLVED

South Korean shipbuilders are facing hurdles such as tough US regulations on vessels, however.

US coastal states also oppose the revision of the Jones Act and the intro the introduction of the SHIPS Act. The Jones Act requires goods shipped between US ports to be transported on ships that are built, owned, and operated by the country’s citizens or permanent residents.

The SHIPS Act includes recommendations to rejuvenate the US-neglected shipbuilding infrastructure amidst China’s rapid rise as a commercial and military maritime powerhouse.

Among the proposals are calls for assistance from US allies with robust shipbuilding capacities, including South Korea.

South Korean shipyards need to adjust schedules for docks, which are filled with work for the next three years. Any ship ordered this year will be delivered in 2028.

“We must check if we can adjust the schedules with the existing customers, although the US requests quick deliveries,” said an official at a South Korean shipbuilder.

Those shipbuilders may not be able to use Chinese steel plates, which are usually 30% cheaper than South Korean ones, for vessels to be exported to the US.

If they use only South Korean steel plates, that will push up costs, while the shipbuilders need to coordinate production volume with local steelmakers.
Source: The Korea Economic Daily