by Lloyd's List
THE Trump administration’s controversial trade policies have put the global shipping industry on high alert. While the full impact remains uncertain, South Korea shipbuilders stand to gain as Washington looks to curb China’s dominance in this sector.
Measures including port taxes on China-built ships could be a “game changer” in reshaping market dynamics and boosting orders in world’s second-largest shipbuilding nation, JP Morgan analyst SM Kim told Lloyd’s List in an interview.
“By ruling out the world’s largest as well as the most cost competitive and aggressive capacity, it’s completely different,” said Kim. “And if you take out China, which accounts for two thirds of global capacity, South Korea is two-thirds.”
China’s cost advantage may suffer
The jury is still out on how significant a blow Washington’s policies, which have yet to be finalised, could be for China’s shipbuilding. But proposed special port fees on ships built by China and companies operating them are high enough to make shipowners rethink ordering choices.
A recent leaked draft executive order shows levies could be further expanded, with non-Chinese ships also facing fees for calling at US ports if they are part of fleets containing Chinese vessels.
Large shipping firms have said they may reduce US calls to cut extra costs. But the executive order also urges the country’s officials to engage allies to take similar action, or face retaliation.
With the US, Canada and Mexico likely to address China in their trade talks, the potential port tax may go beyond the US.
Kim wrote in a research note that while the proposal is not confirmed and some measures are vague, its implementation could alter some shipowners’ order decisions, with higher operating costs of Chinese ships being considered.
He gave examples of how the fees are expected to increase handling costs for China-built VLCCs and LNG carriers calling at US ports by about 15%-20% and 10%-15% respectively.
“These increased fees could partially diminish the price competitiveness of China’s shipbuilders, whose ships are about 10%-15% cheaper than those from Korea.”
South Korea may benefit most
South Korea, with about 25% of global orders (China has near 60%), stands to be the biggest beneficiary of the changes, Kim said. Cooperation with Washington on naval shipbuilding and future LNG projects will further boost its advantage.
Based on US Congressional Budget Office analysis of naval shipbuilding costs, Kim estimates South Korean yards could gain about $10bn in annual revenue from the business.
If HD Korea Shipbuilding & Offshore Engineering, the largest shipbuilding group in the country, wins half, that would be equivalent to nearly 30% of its 2024 revenue.
HD KOSE’s parent group, HD Hyundai, said in an email response that South Korean builders are expected to help “restore the competitiveness of the US shipbuilding industry”, and its entry into the US market will “gain momentum”.
The company will start the maintenance, repair and operation (MRO) business for the US Navy from this year.
Kim said if naval shipbuilding deals are finalised, South Korean yards would have a significant portion of guaranteed utilisation, which could prompt consideration of expanding capacity. However, he added that for now the focus should remain on staying disciplined and profitable.
“They are not rushing to add capacity. But if they enjoy sustainable years of strong margin, say 20%, they may be inclined to shift focus to the top line.”
Capital markets have reacted. Shares of major South Korean shipbuilders rose 80%-180% in mid-December versus a 3% drop in the broader domestic stock market, Kim noted. This reflects both a newbuilding demand boom and optimism over US policy impact.
Kim said the port fees have raised expectations the competitive landscape could change. “While it may take time, a partial materialisation of the discussions would have a material impact on the Korean shipbuilders. The rally so far partly reflects the various US expectations but not necessarily those ahead.”
Execution won’t be easy
However, uncertainty remains over whether the controversial proposal, which is seen as damaging both China’s maritime interests and the US economy, will be successfully implemented.
Speakers at last week’s TPM25 conference questioned the feasibility of such a complex scheme. There is also skepticism whether the US can revive its shipbuilding industry.
CMA CGM chairman and chief executive Rodolphe Saade recently told French media that he was discussing with shipyards the possibility of building 6,000 teu class containerships in the US, having last week pledged to invest $20bn in the country’s shipping and logistics sectors over the next four years.
“From there, we’ll see if we go ahead or not. What is interesting is to have this possibility,” the head of the world’s third-largest container line was quoted as saying.
Xclusiv Shipbrokers stated in a report that the French giant’s commitment signals strong private sector support for US maritime infrastructure. However, questions remain about the viability of large-scale shipbuilding in the US and the broader impact of protectionist policies on global trade dynamics.
“As these developments unfold, the shipping industry braces for a reshaped competitive landscape, with far-reaching implications for both domestic and international players.”
Kim also said reviving US shipbuilding faces tough challenges.
“I think the arrangement could be that while some portion of that demand will be built in South Korea, the US might request technology transfer, with some of the ships built in US yards using Korean engineers to provide know-how.”
The last large US-built merchant ship was the 49,035 dwt product tanker American Phoenix (IMO: 9564578), delivered in 2012 after over four years at triple the cost of a similar South Korean-built ship.
“I don’t think government support would ensure US shipbuilding costs could come down as low as China or South Korea, but they might have some capacity to build a few ships, even at a higher price.”
