Korean shipbuilders shift to container ships, pushing down profit margins

Major domestic shipbuilders have recently won a string of orders for large container carriers. Domestic shipbuilders had focused their orders on liquefied natural gas (LNG) carriers, considered high value-added ships, but as orders have fallen and there is room in their slots (shipbuilding berths), they are filling them with container ships. The industry expects that if LNG carrier orders decline and container ship orders increase, shipbuilders’ profitability will fall.

According to the shipbuilding industry on the 26th, Samsung Heavy Industries recently signed a contract with Taiwan’s EVERGREEN to build seven 14,000-TEU container ships (1 TEU equals one 20-foot container). The price is reportedly $200 million per ship (about 284.1 billion won). EVERGREEN explored placing newbuild orders for 14 container ships with Guangzhou Shipyard in China and Samsung Heavy Industries, and each won seven ships. With this container ship order, Samsung Heavy Industries has now won a total of 11 container ships this year, far exceeding last year’s container ship orders (four).

HD Hyundai Heavy Industries and Hanwha Ocean are also filling workloads with other merchant ships, such as container ships or very large crude carriers, as LNG carrier orders decline. HD Hyundai won orders from HMM this month for eight 13,000-TEU container ships and two very large crude carriers. HMM also placed orders for four container ships of the same size with Hanwha Ocean.

This year, domestic shipbuilders have won a total of 15 LNG carriers, 31% of last year’s 48. In contrast, container ships total 78, already surpassing last year’s overall orders (46). Container ships have lower margins than LNG carriers.

For this reason, Korea Investment & Securities projected that if major domestic shipbuilders close out the slots deliverable through 2028 without adding more LNG carriers, their operating margins will decline in 2027. Hanwha Ocean is expected to fall to 14.8%, down 1.4 percentage points (P) from 16.2%; HD Hyundai Heavy Industries to 15.6% from 16.1%; and Samsung Heavy Industries to 15% from 15.3%.

Kang Kyung-tae, an analyst at Korea Investment & Securities, said, “LNG carriers have roughly double the construction margin compared with other ship types,” and added, “If shipbuilders cannot win more LNG carriers, even if revenue holds steady, operating margins will fall.” Source: CHOSUNBIZ