S. Korean Shipbuilders Not Benefiting from Ongoing Boom in Cruise Ship Industry

Cruise Ship Industry
South Korean shipbuilders are failing to distinguish themselves in the global cruise ship market.

According to the Korea Trade-Investment Promotion Agency (KOTRA), 56 contracts were signed for new cruise ships and ferries around the world last year whereas the average had been 43 for the period of 1996 to 2015. The global cruise ship industry is expected to show an average annual growth of 6% in 2016 to 2021. Contracts for 23 new cruise ships were signed for the first eight months of this year alone and the total value of the contracts amounts to approximately 18 trillion won (US$16 billion).

The amount of equipment used in a general cruise ship is about 20 times that used in a general merchant ship and, as such, cruise ship building has its positive effects across a variety of industries. These days, cruise ships are adopting more and more environment-friendly technologies such as hybrid propulsion systems and LNG engines, too. The German Shipbuilding and Ocean Industries Association (VSM) has selected South Korea as one of its most important partners, praising South Korean shipbuilders’ and equipment manufacturers’ environment-friendly technologies.

Nevertheless, South Korean shipbuilders are failing to distinguish themselves in the global cruise ship market. This is partly because German companies building leisure ships, which are frontrunners in the industry, are trying to keep Asian companies at bay. Back in the 1970s, German shipbuilders were driven out of the global cargo ship market due to Asian shipbuilders’ dumping prices. Since then, the former have restructured themselves and focused on high value-added ships such as cruise ships.

In 2008, STX Offshore & Shipbuilding entered the cruise ship market by acquiring shipbuilders in France and Finland. However, a global financial crisis broke out immediately after the acquisition and the South Korean company had to sell the shipbuilders in 2014. The foreign companies that acquired the shipbuilders recently signed new contracts for luxury cruise ships.

South Korean shipbuilders such as Hyundai Heavy Industries, Samsung Heavy Industries and Daewoo Shipbuilding & Marine Engineering grew based on container ships and bulk carriers and then entered the high value-added offshore plant market, only to tumble amid a decline in oil prices. Likewise, local equipment suppliers’ capabilities have some limit in penetrating the global leisure ship market.

“Cruise ships require advanced technology for hull shaking minimization and high-quality interior components that can satisfy tourists,” said an industry expert. “South Korean companies are competitive enough in the eco-friendly ship equipment market,” the KOTRA commented, adding, “They need to focus more on leisure ship equipment demands, which are likely to continue to increase for the time being.”

The Original Posted by Jung Min-hee/Business Korea