Breaking ground

Develop design. Begin domestic marketing. Sell first ships. Build reputation. Commence exports. Increase complexity. Prepare for next market. Repeat cycle. This is the basic pattern that Korean shipbuilding has followed since its modern era took off.

Now the shipbuilders are at the stage where they are ready for their next push for dominance. They have cracked the LNG carrier market over the past 10 years by following this exact development cycle. They have pretty much cornered the offshore FPSO market too. So where next?

Hyundai, Samsung and DSME have all taken their first tentative steps into the passenger-ship sector.

Hyundai alone though currently lists ropax ferries as a core market. But after delivery of a second ship to Stena later this year it has no outstanding orders, although it says it is in discussion over a number of possible projects. The shipbuilders can see a surplus availability of recently-built quality second-hand tonnage in Europe denting demand for newbuildings. While they are maintaining technical expertise in this area they are not actively pushing it.

The market, like any in shipping, will pick-up again as cycles revolve. But the demand, when it does come, may be from an unexpected source. Song Deuk Lee, director of the international cooperation office of the Korea Shipbuilders? Association, reckons that the ferry market in Asia is ripe for expansion, with the 2008 Beijing Olympic Games acting as catalyst. Routes suggested include Taiwan to Hong Kong, Korea to Japan and China to Korea.

Travel patterns and expectations differ greatly in Asia to Europe. What is clear is that there are large numbers of Japanese tourists in Korea and China. And the Koreans and Chinese are venturing beyond their national borders in significant numbers too. Star Cruises has shown in the cruise sector (admittedly in south-east Asia) that conventional wisdom can be turned on its head with good local knowledge and a solid business plan.

For the shipbuilders, the cruise sector occupied by Star Cruises and others is the holy grail that lies beyond the cracking of the ropax ferry business. The massive influx of newbuilds into the cruise fleet this year and next means that the market has generated virtually no demand over the past two to three years. Conversely this means there are few ships (just four) currently scheduled to enter service in 2005 and 2006. Builders could take this as a sign that demand is set to turn around.

The Korean shipbuilders are well aware of the challenges of building cruise ships in Asia: the high import requirement, the absence of local subcontractors and the reticence of overseas subcontractors to working in Korea. But this doesn?t deter them all. “Eventually our final goal will be there,” says S C Jung, general manager of the ship sales department at Hyundai. “We are in a period of study and preparation so for the time being we will concentrate on the ropax.”

Aside from breaking into new sectors it is a case for the Korean shipbuilders of making sure they are ready when owners demand scaled-up versions of existing ship types ? 200,000m3 LNG carriers, post-panamax containerships etc. And for each shipbuilder developing niche markets. Hyundai is undertaking design of a compressed natural gas carrier using a containment system developed by American company EnerSea. DSME is building LNG ships that regasify LNG onboard and offload at special buoys. Samsung is looking at new forms of gas transportation such as gas-to-liquid and natural gas hydrates. And all the shipbuilders have an eye on offshore LNG production plants.