SHI Contracts Hanwha Ocean to Provide Blocks for Shipbuilding Projects
Hanwha Ocean has reportedly entered into a deal to build blocks for Samsung Heavy Industries in a unique cooperation that for the first time sees two of South Korea’s largest builders working together. The agreement will help to address some of the capacity issues and labor shortages that the major shipyards are facing after having built up extensive orderbooks during the past few years.
Details of the agreement were not announced, but Hanwha Ocean confirmed the contract had been signed in response to media inquiries. According to the reports, Hanwha Ocean will be paid approximately $8 million per ship to supply blocks to SHI which will be used as part of the construction of containerships due to delivery starting in 2026. The total contract is being valued at more than $38 million.
While it is common in the industry to use additional shipyards to build blocks that are delivered and assembled at the primary yard, this deal is seen as unique because it links two of the leading competitors in the South Korean market. SHI previously developed offshore capabilities in China with three yards that were being used to build blocks. Last year, the company sold the second of the three facilities it had operated in China since 1997 citing the need for extensive investments to upgrade the operation.
SHI according to media reports has a large backlog of orders which is valued at nearly $32 billion. Samsung has reported the yard is fully booked for three years of production capacity. The long lead times for deliveries have been seen as a competitive disadvantage for the shipyards which are struggling with a lack of skilled workers for certain tasks.
The assignment may also be a reflection of the changing fortunes and outlook for the South Korean shipbuilders. After record contract years, last year proved difficult as orders slowed. Reports from South Korea indicated the SHI achieved only about 87 percent of its goal of winning $9.5 billion worth of orders. Hanwha Ocean, which was launched after the group completed the acquisition of the troubled Daewoo Shipbuilding & Marine Engineering, is reported to have reached less than 60 percent of its target for the year.
Contracts from SHI will provide additional work for the operations at Hanwha Ocean while also providing added capacity for SHI. Executives at Hanwha Ocean emphasized that the company has a significant orderbook as they work to prioritize the business after the acquisition. Hanwha Ocean declined to announce its 2024 target for new orders.
Only HD Hyundai Heavy Industries was reported to have exceeded its 2023 order target. It won nearly $16 billion in orders which was more than 140 percent of its yearly target. A large order from QatarEnergy converting reservations into firm projects helped Hyundai’s shipyards to meet their goals while SHI and Hanwha Ocean were reported to be still negotiating orders from Qatar.
A researcher at the Overseas Economic Research Institute of the Export-Import Bank of Korea, Yang Jong-seo, predicted to the Korea Times that 2024 will be a challenging year for the shipbuilding industry as they believe shipowners will have fewer reasons to place new orders. The research unit is forecasting a 16 percent decline in orders for the industry to approximately $28 billion in 2024.