Here's an article which could get this topic off to a good start.
http://www.businessweek.com/globalbiz/content/may2007/gb20070518_445854.htm
May 18, 2007, 7:40AM EST
A Steady Hum at South Korea's Shipyards
The good times are likely to continue for shipbuilders Hyundai, Samsung, and Daewoo well into the next decade, though Chinese rivals loom
by Moon Ihlwan
Don't try to tell South Korea's ultra-prosperous shipbuilders their days are numbered as competition intensifies with China. Executives at the country's major shipping yards see their order books for mega-ships bulging well into next decade.
"Sure the Chinese will challenge our leadership in the future," says General Manager Kim Boo Kyung at Samsung Heavy Industries, the world's second largest builder of ships. "But that won't happen until 2020 or beyond."
While plenty of South Korean industries have a bad case of China jitters, it isn't so when it comes to the sprawling cargo ships that carry around the world's major tradable goods. The Koreans rule: They built 41% of all ships delivered last year, and the country is home to 6 of the world's top 10 shipyards.
In the most sophisticated freighter category—liquefied natural gas carriers—four out of five are built by Korean companies. Korea is also home to the three biggest industry players: market leader Hyundai Heavy Industries (HYHZF), followed by Samsung Heavy (SMSHF), and Daewoo Shipbuilding & Marine Engineering.
Reason for Concern
To pull away from shipyards in China, which aims to eclipse Korea as the largest shipbuilding country by 2015, Korean companies are focusing on such high-value-added vessels as LNG carriers, ultra-large ships, and oil-exploring drill ships. The Koreans are also seeking more innovative ship-manufacturing processes to boost productivity (see BusinessWeek.com, 5/12/06, "Korea's Shipbuilding Industry Sails Ahead").
There is some reason for concern, however. By one key metric, the Chinese have overtaken the Koreans this year. British Clarkson Research Service, which closely tracks the industry, said in a recent report that Chinese yards signed 56.6% of the total number of new contracts in the first quarter of 2007, with the Koreans accounting for just 26.1%. Korean newspapers called it an early warning signal that the country's shipyards will face a fate similar to that of domestic textile manufacturers and assembly-heavy electronics makers that have either relocated to China or closed shops.
Managers at Korean yards brush aside the argument. The demand for new orders this year has been largely focused on bulk carriers for delivery by 2009, and the Korean shipbuilders are fully booked with work until the first half of 2010. "The bulk carrier market is certainly hot, but we don't have the room to accommodate the needs," says Kim.
Cyclical Industry
The plentiful backlog of orders underlines an extraordinary stretch of shipping demand since the last industry slump back in 2002. At the end of March, Korean shipbuilders were sitting on orders for 1,186 vessels totaling 75.8 million gross tons and worth more than $100 billion, according to the Korean Shipbuilders' Assn.
That will keep the major players in high-speed mode for about 3 1/2 years. "We are in a cyclical industry, and this boom can't last forever," points out Kwon Oh Yoon, a senior manager at the association. "But there's no sign in the horizon the buoyant mood will sour any time soon."
Not surprisingly, Korean shipyards are raking in some serious profits. Until late last year, they had suffered from lackluster profitability because of the combination of a sharp rise in steel sheet prices in recent years and the low contract prices they accepted until the latter half of 2004. Given a three-year lag time between when contracts are signed and when earnings are booked with the delivery of ships, the yards are beginning to reap rewards in earnest from lucrative contracts dating from late 2004.
Red-Hot Activity
The biggest beneficiary will be Hyundai Heavy, the undisputed global leader. After almost quadrupling its net profit to $771 million in 2006, Hyundai Heavy is expected to more than double profit this year, figures brokerage Korea Investment & Securities.
That's because shipbuilding prices almost doubled from a low in mid-2002 to early 2005 and have since stayed strong. Hyundai Heavy stock has jumped some 126% so far this year, making it the best performing blue chip on the Seoul Stock Exchange.
Share gains of Samsung and Daewoo have been less impressive, although they have risen by 59% and 39%, respectively, in 2007. One reason was their greater emphasis on specialized LNG carriers, whose contract prices have climbed less dramatically than those of tankers, containers, and bulk carriers. "Although my top pick is Hyundai Heavy, all the big three will likely post double-digit profit margins by the end of next year," says Song Jae Hak, shipbuilding analyst at Woori Investment & Securities.
Industry watchers say the ongoing red-hot shipbuilding activity has been triggered by China's seemingly nonstop economic and trade growth. "The emergence of China as the factory of the world has changed the paradigm of shipping patterns, thereby fueling fresh shipbuilding needs," says Cho Yong Jun, head of research at Shin Young Securities in Seoul.
House of Cards
A big upsurge in global commerce with the mainland led to the development earlier this decade of ultra-large container ships several football fields in length. Shipping lines raced to build oversized ships, capable of stacking between 8,000 and 12,000 containers, to service ever-growing seaborne trade between Asia and the U.S. Now, many industry officials believe the race to build bigger fleets by shipping lines won't be likely to end unless China scales down its industrial ambitions (see BusinessWeek.com, 4/23/07, "Why Taming the China Dragon is Tricky").
Take the latest frenzy to build bulk carriers. China's determination to own huge steel plants for fast industrialization created a sudden upswing in coal demands to power the mills. That made China a net coal importer from an exporter in the past, forcing Japan and South Korea, which used to import coal from China for generating electricity, to switch their coal source to Australia.
The switch not only meant longer hauls, requiring a greater number of shipping days, but also congestion at Australia's coal-handling New Castle port. That holds up scores of ships waiting to be loaded, thereby contributing to the shortage of ships carrying dry bulk cargoes. To worsen the situation, the recent imposition of duty on export of iron ore from India prompted China to divert its iron ore imports from India to Brazil, again engaging more bulk carriers on longer hauls.
Rise in Freight Charges
The upshot: Ocean freight for dry bulk cargoes skyrocketed. Short-period daily hire rates for 75,000-ton-class vessels in the Pacific have hit a historic high of $46,900 per day in May, up 30% since the beginning of this year and up more than 100% from a year earlier. The Baltic Exchange Dry Index, the best indicator of bulk cargo shipping prices, has topped 6,600 in May from below 1,500 in mid-2002.
The stunning rise in freight charges is spurring bulk carrier operators to join the race to secure more vessels. Clarkson notes this pushed the price of a new, 170,000-ton-class bulk carrier to $79 million in March, up from $76.5 million in February and $71 million in January. Shipping lines are also starting to place orders for large container ships for delivery in 2010 because they are worried that docks and berths at major shipyards would be completely taken over for building bulk carriers unless they hurry.
"It looks like a case of déjà vu," says a recent Clarkson report. Last year, when there was a boom in the large tanker building market, container ship owners rushed back to shipyards to secure berths for 2009 delivery because of dangers of losing a new supply of containers for that year. "Last year the driver of the shipbuilding market was the tankers, and this year it is bulk carriers," says Cho at Shin Young.
The competition to sign shipbuilding contracts early certainly won't increase the bargaining power of shipping lines. But it is music to ears of the Korean shipyards that dominate in building mega-vessels.
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Crafting a Monster Megaship
See how Korea's industry-leading builder assembles and launches a massive vessel for a Greek shipping company
By Brian Bremner
When it comes to shipbuilding, the Korean dockyards rule. And the undisputed global leader is Hyundai Heavy Industries, which boasts a 21% global market share of the biggest class of container vessels. Hyundai's profits jumped nearly fourfold in 2006, thanks partly to the soaring demand for container ships to carry Asia-made electronics, clothing, and other goods. It enjoys an order backlog of 33 ships that can carry 8,000 units of container boxes or more. .
To stay ahead of Japanese and Chinese rivals, Hyundai has developed megaships that can carry up to 12,000 containers. Last year it delivered one such seagoing behemoth to Greek shipping company Costamare Shipping. Here is an inside look at how it was constructed.
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Block Fabrication
These ships are massive, extending 344 meters (376.2 yards) in length and 42.8 meters (46.8 yards) in width. The first phase in construction involves cutting huge steel plates and bolting them together into blocks with computer-controlled automatic welding machines. A typical ship of this size requires about 100 large blocks, including curved ones for the bow and stern segments.
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Assembly in Dry Dock
Once the steel blocks have been assembled, they are transported to a dry dock on transporters. These vehicles can move blocks weighing up to 1,000 tons. A giant crane lifts the ship blocks into place, one by one from the bottom up, for assembly in the dry dock. These so-called "Goliath cranes" are 107 meters (351 feet) high and have a lifting capacity of 900 tons. They are also used to move engines and propellers into place.
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Mother of All Paint Jobs
About 90% of the blocks are painted and treated to prevent rust and other degradation before arriving at the dry dock for assembly. However, the welding lines of assembled blocks get a coat of paint at the dry-dock facility. Upper-deck painting and trim work come later at an outfitting quay after the ship has been pretty much constructed.
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Installing the Propulsion System
After the ship's hull has been assembled, the engine, propeller, and crankshaft are then installed. The propulsion system is designed to generate service speeds of about 25.4 knots, or nautical mph. And the marine engine is massive. It is roughly the size of a seven-story building and weighs 2,100 tons. The engine crankshaft alone is 25 meters (27 yards) long and weighs 403 tons.
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One Awesome Propeller
Take a look at this monster propeller. It weighs 107 tons and is 9.1 meters (about 10 yards) in diameter. The six-blade propeller used to power the ship is made from manganese bronze and nickel-aluminum bronze.
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Launch Time!
The assembly of the ship's hull and the installation of the engine, propeller, and the upper deckhouse (including the ship's cabin and crew facilities) takes about two and a half months in the dry-dock facilities. Once that is finished, the dry dock is flooded with seawater and the dock gate is opened. Tugboats tow the ship out to an outfitting quay for final touch-up work. After a ceremonial naming event, this super tanker is ready for action.