Korean shipbuilders are expanding their non-shipping ventures, including engines, special vessels, and offshore plants, capitalizing on the current boom in the shipping industry. Learning from past experiences of oversupply during previous supercycles, they are investing profits from this boom into diversifying their business portfolios to prepare for the next downturn.
According to Korea Credit Rating on September 17, major shipbuilders such as HD Hyundai Heavy Industries, Hanwha Ocean, and Samsung Heavy Industries have secured more than three years' worth of orders. Given their order backlogs, analysts believe that this strong performance is likely to continue in the medium term.
During the last shipbuilding supercycle, increased production capacity led to oversupply after a sharp decline in ship orders following the 2008 global financial crisis. This time, industry insiders report that shipbuilders are focusing on strengthening their non-shipping businesses rather than aggressively expanding production capacity, aiming to reduce reliance on high-value ship types like liquefied natural gas (LNG) carriers.
HD Hyundai Heavy Industries is building a relatively balanced portfolio that encompasses engine machinery, special vessels, and offshore plants. Notably, in the engine machinery sector, the company recently signed two contracts to supply engines for data centers in the United States, totaling 1.58 trillion won. Unlike previous demand, which was closely tied to new ship orders, the market for engines is now expanding beyond shipping.
Hanwha Ocean is leading the way in business restructuring among the three shipbuilders, focusing on special vessels and local production in the U.S. Following its acquisition of a shipyard in the U.S., the company is also pursuing a 100% acquisition of the U.S. division of Australian shipbuilding and defense firm Austal.
Samsung Heavy Industries is positioning offshore plants as another growth pillar. Leveraging its experience in constructing some of the world's largest floating liquefied natural gas (FLNG) facilities, the company is enhancing its high-value offshore plant business. This year, it secured orders for two FLNG units, bringing its total offshore sector revenue to $4.4 billion, which accounts for about 40% of its total orders of $11.7 billion.
The key question is whether the non-shipping ventures can generate stable profits and cash flow during future downturns in the shipping market. Special vessels are less correlated with shipping market conditions due to their ties to defense budgets and security policies, but they also face uncertainties in overseas orders and upfront investment burdens. Offshore plants, while large in scale, carry risks related to design changes and cost fluctuations.
Engines are seeing some demand from non-shipping markets, such as data centers, but their overall contribution to total demand remains limited. Ultimately, the success of diversifying into non-shipping ventures will depend on the ability to maintain stable profits and cash flow even amid a slowdown in the shipping market.
An industry insider stated, "Given that the share of shipping in major shipbuilders' revenues is high, it can be seen as an investment for the future during a profitable period. Based on the lessons learned from the difficulties faced after past booms, they are pursuing diversification in special vessels, U.S. operations, and offshore plant technology development."
* This article has been translated by AI.
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