The shipping industry of korea

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Shipping Industry of Korea

Introduction

Koreas shipbuilding technology has greatly developed over time. Back to the ancient time, the three kingdoms (Kokuryo, Paekche and Shilla) competitively extended their influence to sea trade routes in A.D. 7. By the mid th Century, they installed a trade centre in china.

In 1011, spear ships that prevented enemy ships from approaching were in use and warships equipped with gunpowder and firearms appeared by the year 1150.

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In 15, Admiral Yi Sun Shin built up his own navy and directed the construction of a fleet of modern warships including turtle ships to prevent Japanese further invasion. The turtle ship, so named due to its shape, was ringed with state-of-the-art military technologies at that time.

400 years later, today, Korea is identified as a priority market for the Marine Equipment Industry.

Many countries place great strategic importance on their national shipping industry because it plays a vital role in their economies. Maritime transport is essential to expanding world trade, as nearly 80% of the world trade in goods is seaborne. Korea is not an exception to this considering Korea is geographically surrounded by the sea on three sides.

160's

Foreign trade has been a crucial element in Koreas national development strategy. Until the 160s, however, the industry was small, rather unsophisticated, and catered mainly to the domestic market by building coastal fishing vessels and small cargo ships.

Since 16, Korean shipping policy has been aimed at expanding the national fleet. This was to support the export-oriented economic development by means of efficient shipping and the improvement of the business climate.

170's

The development of shipbuilding was followed further in the 170s by a government-sponsored economic program. The program was aimed to restructure Koreas dated industry into a modern, technologically advanced one, able to compete worldwide. Special emphasis was placed on Heavy Industry and Chemical Industry. In this context, the shipbuilding industry was perceived as a leading export industry, due to its comparatively large-scale trade volumes (in terms of value). There was also abundant, high-quality labor available in Korea. These factors allowed the Korean shipbuilding industry to compete on equal terms with the existing shipbuilding centers. Being surrounded by the sea on three sides and having few natural resources has meant that Korea has had to rely on exports.

The shipyard construction of the 170s reflects this growth - in 17 Hyundai Heavy Industries Co., Ltd. completed construction of a shipyard. In 178 Daewoo Shipbuilding and Marine Engineering Co., Ltd. completed a No. 1 dock, and in 17, Samsung Heavy Industries Co., Ltd. constructed its own No. 1 dock.

180's

In the 180s the situation had progressed sufficiently for Korea to be ranked number two in the world shipbuilding industry in terms of market-share. Productivity improvement, technology development, and the growth of related industries, helped increase shipbuilding volume continuously without having to add new facilities. And in the second half of the 180s, their world market share rose from 10 percent to 5 percent.

10's

In the 10s, Korean shipbuilders made every effort to accumulate the advanced technology required for the construction of high value added vessels. In the late 10s, Korean shipbuilders achieved great productivity improvement both in terms of yearly production volume per employee and yearly number of turnover of dry docks.

Shipbuilding Today

The Korean shipping industry is growing at an impressive rate. Starting out with a mere 100,000 G/T of fleet tonnage in 160, Korea was ranked eighth in the world in terms of total merchant fleet tonnage in 000. In the container sector, Korea stood fourth after Japan, Taiwan, and the United States.

According to the data released by KOSHIPA, new orders placed by Korean shipbuilders in 00 amounted to 7.6 million CGT. This is an increase of 18.5 % compared with 6.4 million CGT in the previous year.

With the productivity improvement and the upgrading of production technology along with sufficient workload, Korean shipbuilders built a record high of 6.8 million CGT in 00, up 5.% in tonnage terms over the previous year. In the interim, the order books as of the end of 00 recorded 17.1 million CGT, up 5.% compared to a year earlier. This is approximately a two and half year workload.

Shipbuilding Technology

Before entering into the world shipbuilding market in the early 170s, Korean shipbuilders had mostly built conventional cargo ships, such as crude oil tankers and dry bulk carriers. Since the early 180s when Korea emerged as one of the leading nations in shipbuilding, it has developed technologies to build container ships, " roll on �roll off " ships, oil drilling rigs, etc.

Computer-based ship design and production was introduced to the Korean shipbuilding industry in the 170s. As early as the 180s Korean shipbuilders had introduced commercial CAD system for ship design. Since then Korean shipbuilders have made significant advances in the enhancement of various kinds of CAD/CAM systems and have developed in-house software not only for ship design but also for production. In parallel to that, particular advances have also been achieved in non-CAD area supporting and utilizing CAD/CAM system respectively for engineering analysis and material control to increase productivity and quality.

Additional research is being carried out jointly with classification societies focusing on the safety issues raised in building new generation of ship types. Korean shipbuilders, with their abundant and highly trained naval architects and engineers, can meet various ship owner design requirements.

Growth of the Korean Ocean-going Merchant Fleet compared to the world

Table-1 shows the growth of the total capacity of the Korean fleet between 171 and 000. The capacity of the fleet measured in gross registered tons grew at an annual rate of 6.4 percent during this period. During the same period, the world merchant fleet, as shown in Table-, grew at an annual rate of only .8 percent. The rapid growth rate of the Korean fleet allowed it to expand its share of total world tonnage from 0.8 percent in 171 to 1.06 percent in 000.

Growth of the Korean Ocean-going Fleet by type

Table- presents data on changes in the composition of the Korean ocean-going fleet between 10 and 000. During the period, container ships and liquid bulkers expanded considerably. This expansion can partially be attributed to the recent tendency to increase the size of these ships. Considering that the total Korean fleet grew more rapidly than the world fleet has, this expansion is an indication that the development of a container and a liquid bulk fleet in Korea lagged behind the relative growth of the dry bulk sector of its merchant marine.

Growth of Seaborne Trade

Table-4 presents the data on changes in seaborne trade during the period between 170 to 000. Between 170 and 000 the growth of world seaborne trade increased by .6 percent per annum, while Korean trade increased annually by 11.1 percent. However, the growth of Korean seaborne trade seems to show the same pattern as the world trade. As the Table shows, the annual growth rate in the 180s declined to . percent for Korea and 1.0 percent for the world; and in the 170s from 15.4 percent for Korea and .8 percent for the world. The annual average growth rate again rose to 8.8 percent in Korean trade and .1 percent in world trade in 10s. With regard to seaborne trade, it is important to note that the growth of Korean participation in cross-trades outpaced the growth of Korean seaborne trade. As shown in Table-5, the total tonnage carried by the Korean operators in cross trades increased from only 5.4 million tons in 170 to 181.6 million tons in 000.

Korean Operators in 000 by ship's capacity

In the year 000 there were 61 separate ocean-going operators in Korea. However, as Table-6 shows, the four largest operators alone accounted for 7. percent of the total capacity. Thus, the Korean shipping industry appears to have a dualistic structure, with half of its capacity in the hands of a few large carriers and the other half split amongst a multitude of small carriers. At one extreme there are Hanjin Shipping and Hyundai Merchant Marine, which accounted for 51.4 percent of total tonnage in 000. At the other extreme there are 51 small operators, each possessing less than 100,000 gross tons of shipping capacity, which in 000 accounted for only 8.0 percent of the total capacity.

Korean shipping companies earned $11. billion in freight revenue in 000, up from $.5 billion in 10, an average annual growth rate of 1.5 percent, thanks to the escalation of freight rates and increased seaborne cargo. Revenue from cross-trade increased to $6.0 billion in 000 from $1.4 billion in 10, making up 58. percent of the industrys total revenue. This growth is attributable to companies strengthening business activities through strategic overseas alliances and diversifying into the worldwide service and the pendulum service. In particular, revenue from container cargo increased steadily among the export-import goods; iron ore and grain cargo gradually increased as well.

Freight Revenue Trends by Cargo

Reflecting this bright situation in freight revenue, the overall financial position of the Korean shipping industry improved steadily from 1 to 15. The industry was continuously in the black from 188 to 15. In 17, however, the industry experienced a slump in net profits due to a plunge in fare prices and the economic turmoil in Asia.

The Korean Shipping industry has considerable know-how in all aspects of maritime transport services, such as management techniques, cargo collection, and customer service. And taking into consideration that it has a good merchant fleet, marine manpower, advanced shipbuilding techniques and its position at the hub of northeast Asia, the growth potential of Korean maritime industry seems large. Thus, after enduring tough periods arising from the worldwide excess of shipping tonnage and world economic/financial turmoil, the Korean Shipping industry is now expected to continue to grow, building upon its recovery which began in 1, as the world shipping industry recovers and cargo volumes rise. Thus, it is forecasted that Korea's export and import cargo volume will rise to 8. millions tons in 010 from 56. million tons in 001, and Korean commercial vessel tonnage will grow to 1.5 million GRT.

National Deregulation Policies

Starting in 10, the Korean government has steadily introduced liberalization and deregulation policies in the shipping industry, guaranteeing liberalization in the private sector and opening the domestic market to foreign carriers for the purpose of corresponding with the trends of globalization.

As a result of these efforts, Korean shipping industry is now largely liberalized due to the elimination of almost all trade barriers in maritime transport services. Accordingly, the Korean government understands it can no longer foster the growth of the shipping industry through protective policies. Liberalization measures have included the following

• Foreign carriers were allowed to establish branches in Korea (January 18).

• Foreigners were allowed to invest in shipping auxiliary services, including maritime agency service and maritime freight forwarding service (June 1).

• In the case of the cargo reservation system for non-liner shipping, the number of items on the designated cargo list has been gradually reduced from the original 11 to (items were already removed from the designated cargo list government procurement goods, refrigerated goods, cement, steel products, raw material for fertilizer, grain, coal and petrochemicals).

• The Waver System in liner shipping has been eliminated, allowing free access to the Korean market by foreign carriers (January 15).

• The licensing system of ocean-going shipping was transformed into the filing system, maintaining the policy of gradual liberalization the shipping industry (in 16)

• The Designated Cargo System was abolished entirely (in 1).

Korean Shipbuilders Advantages

Korean shipbuilders have the worlds most efficient steel producer (POSCO), which can provide cheaper and better quality of steel products than any other steel producer. Korean shipyards are based in the same area as POSCO, which is a vital condition for efficient operations. Tougher and stricter environmental rules could also be beneficial as world shipping and oil majors need to replace their single-hulled tankers with double-hulled ships. In addition, new environmental measures will increase demand for more clean energy such as liquefied natural gas (LNG), which in turn will raise demand for LNG tankers. Steady growth of world trade will increase the need for larger container ships, where Korean shipbuilders are strong and competitive.

Major Shipbuilders in Korea

1) Hyundai Heavy Industries Co. Ltd

Hyundai Heavy Industries Co. Ltd is the worlds largest shipyard

HHI is very active in the military business and was selected as the main contractor in Koreas submarine project (KDX-II) in 001.

In addition, HHI have become the first shipyard in Korea to build both moss-type and membrane �type LNG carriers. The membrane-type LNG carrier is the world's largest LNG carrier of this type, made up of four independent tanks insulated with polyurethane panels.

) Daewoo Shipbuilding & Marine Engineering Co. Ltd. (DSME)

DSME has successfully completed its restructuring scheme and graduated from the workout program in August 001

) Samsung Heavy Industries

4) Hanjin Heavy Industries & Construction Co., Ltd.

Hanjin Heavy Industries & Construction Co., Ltd. is a subsidiary of Hanjin Business Group and a sister company of Korean Air

5) STX Shipbuilding Co., Ltd

STX Shipbuilding Co., Ltd (formerly Daedong Shipbuilding)

6) Hyundai Mipo Dockyard Co., Ltd.

Hyundai Mipo Dockyards has built 70 petrochemical product carriers since their establishment and has become the unrivalled shipbuilder in this field in the world market.

Competitions

Chinese shipbuilders, who have been taking rapid strides on the global market, are emerging as rivals for the world's leading shipyards in Korea and Japan. Chinese dockyards received record orders during the first five months of this year, including oil tankers, and container and bulk carriers.

According to British shipping industry research firm Lloyds, China grabbed 1.6 percent of the global shipbuilding market last year, up from 11. percent in 001, 5.6 percent in 000 and .5 percent in 18.

At this stage, Korean and Japanese shipyards are ahead of their Chinese counterparts in technology and production capacity. But domestic shipbuilders are afraid that China will chip away at their market share in the future.

China is estimated to be seven to eight years behind Korea in shipbuilding technology for LNG carriers and an average five years for other ship types.

Out of fear over China's rapid emergence as a global shipbuilding powerhouse, Korea's big three shipbuilders _ Hyundai Heavy Industries, Daewoo Shipbuilding and Marine Engineering and Samsung Heavy Industries _ have been reluctant to form partnerships with Chinese shipyards for technology transfer

Conclusion

In the 1st century, Korean shipbuilders are seeking to transform quantitative into a qualitative growth, and are focusing on producing high value-added ships, which offer greater profitability. To fulfill their responsibilities as a leading shipbuilding country, Korean shipbuilders will also do their best to develop new technology for qualified ships and deliver environmental-friendly ships. For the prevention of global warming, a new ship type and FSO for carrying or storing liquefied carbon dioxide (LCD) are expected to be required, of which sector world shipbuilders should take full attention.

Table-1 Growth of the Korean Ocean-going Merchant Fleet

Year No. of Ships Tonnage % Change

171 7 40 -

180 1,46 4,44 18.5

10 ,114 7,86 6.1

000 ,417 5,75 -.1

Unit thousand gross tons

Source Lloyds World Fleet Statistics, 000

1) Percent change annual average increase rate

) Annual average increase rate during 171-000 6.4%

Table- Growth of the World Merchant Fleet

Year No. of Ships Tonnage % Change

171 55,041 47 -

180 7,8 40 6.1

10 78,01 46 0.1

000 86,817 54 .7

Unit million gross tons

Source Lloyds World Fleet Statistics, 000

1) Percent change annual average increase rate

) Annual average increase rate during 171-000 .8%

Table- Growth of the Korean Ocean-going Fleet by Type

Type 10 10 000 000 %

Tonnage share Tonnage share change

General Cargo Carrier 161 1.8 8 . .4

Log Carrier 14 1.6 4 .5 11.5

Dry Bulker 6,15 68.7 5,571 46.0 11.5

Container 1,408 15.6 ,5 1.5 6.

Liquid Bulker 8 10. 1,0 10.7 .6

Others 18 1.5 1,84 15.0 .5

Total ,05 100.0 1,104 100.0 .

Unit thousand gross ton, %

Source Korea Shipowners Association

Table-4 Growth of Seaborne Trade

Unit million tons, %

Year Korean World

volume percent volume percent

170 .4 - ,48 -

180 4.0 15.4 ,606 .8

10 6.7 . ,77 1.0

000 58.6 8.8 5,74 .1

170-000 11.1 .6

Source Korea Shipowners Association, Fearnleys

Table-5 Growth of Korean Participation in Cross-Trades

unit million tons, %

Year Volume Percent Change

170 5.4 -

180 11.4 7.8

10 1.6 10.7

000 181.6 1.1

170-000 1.4

Source Korea Shipowners Association

Table-6 Korean Operators in 000 by Ships Capacity

Capacity Number of Total Capacity % of Total

1,000s of G/T operators 1,000s of G/T Fleet Capacity

over ,000 6,17 51.4

1,500-,000 - - -

1,000-1,500 ,60 1.5

500-1,000 1,518 1.5

100-500 4 804 6.6

less than 100 51 6 8.0

Total 61 1,104 100.0

Source Ministry of Maritime Affairs of Fisheries

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