Joe Biden’s attempt to challenge Chinese supremacy in commercial shipbuilding will probably do little to revive US shipyards, analysts say, but it could help producers in South Korea and Japan withstand competition from Beijing.
President Biden in April opened an investigation into alleged unfair Chinese economic practices in shipbuilding and maritime logistics, a move that could lead to duties for Chinese-built ships calling at US ports.
While designed to aid US shipbuilders, the probe could boost producers in South Korea and Japan — the only two countries apart from China that still have significant commercial shipbuilding capacity — as they fight to defend their market share from increasingly sophisticated and lower-priced Chinese rivals.
“The demand for China-built vessels should go down if there are impositions of port fees on China-built vessels” by the US, said Rahul Sharan, senior manager of bulk research at maritime consultancy Drewry.
“Whether there is enough capacity elsewhere to replace China is a big question,” he said. “But in the long run, there would certainly be some impact on choice of yard location”.
Chinese shipbuilders — led by the China State Shipbuilding Corporation and its subsidiaries — control about 46 per cent of the global shipbuilding market as of 2023 by total order book value for container ships, bulk carriers and tankers, as well as liquefied petroleum gas and liquefied natural gas carriers, according to data compiled by consulting firm Reddal.
They are followed closely by South Korea, at 41 per cent. The total global order book value is more than $244bn. CSSC did not respond to a request for comment.
Biden’s action comes amid fears that China could, in shipbuilding, match the overwhelming dominance it has built in related sectors. Chinese companies make more than 95 per cent of the world’s containers, and the country is home to seven of the world’s top 10 container ports by volume.
In late April, CSSC signed a contract worth almost $6bn for 18 “max size” liquefied natural gas tankers with state-owned QatarEnergy, one of the world’s largest suppliers of LNG.
But with the US shipbuilding industry producing less than 1 per cent of the world’s commercial vessels, analysts described the notion that the country could win back significant market share as “ridiculous”.
Stuart Nicoll, a director at Maritime Strategies International, a consultancy, said that while comparisons between shipyards were difficult, it cost broadly three to four times as much to build a vessel in the US as elsewhere.
“Realistically, they haven’t built for the international market for decades,” Nicoll said.
By contrast, Beijing had “invested huge amounts in building up brand new shipyards that can build ships very efficiently”, said Rob Willmington, markets editor at Lloyd’s List. “They’ve got a very agile, low-cost and skilled workforce that works very long hours”.
Increasing Chinese competition has already pushed South Korean producers, which include Hyundai Heavy Industries, Samsung Heavy Industries and Hanwha Ocean, to climb up the value chain, focusing on LNG carriers and low-emission vessels.
South Korea’s efforts paid off in the first quarter of this year, with Korean shipbuilders amassing $13.6bn in total shipbuilding orders, up 41.4 per cent against a year earlier, while China’s rose 8.6 per cent over the same period to about $12.6bn, industry figures show.
Drewry data showed that South Korea’s pipeline of orders for LNG and LPG carriers also exceeded China’s in terms of the number of vessels.
“Demand for LNG carriers is so strong that we can’t digest all the orders, because of our limited capacity and manpower,” said a shipbuilding industry executive in South Korea. “Some of the orders are going to China, helping Chinese players move quickly up the learning curve.”
Another industry executive said: “It is unavoidable that China will catch up with us on LNG tankers so we’re trying to develop something new to stay ahead, for example, ammonia-powered ships.”
Chinese yards were gaining ground, said Adam Kent, managing director at MSI. “There’s still a market perception that the Chinese quality is not as good as in Korea but that quality is [moving] closer.”
In March, the South Korean government, together with the country’s three major shipbuilders, announced a Won9tn ($6.5bn) five-year package for the shipbuilding industry to increase its technology gap and ease labour shortages.
Japanese producers such as Imabari Shipbuilding and Japan Marine United, meanwhile, account for about 10 per cent of global order book value. Most of these orders are for bulk carriers, their shipyards often directly competing with Chinese rivals.
Some Japanese shipyards have also begun moving into higher technology ships, with Shin Kurushima Dockyard — a group of five shipbuilders — launching a four-year project for low-emission ships. Other Japanese shipbuilders have merged to maintain their competitiveness or survive.
“It’s going to be quite difficult to drastically change the industry structure including cost competitiveness through tariffs alone,” Nomura analyst Kentaro Maekawa said. Imabari and JMU declined to comment when asked about the impact of the US move.
While Japan and South Korea might benefit from US port fees for China-built ships, imposing them would increase costs for American consumers and would be a “very tricky lever” for Washington to use against China, said Kun Cao, deputy chief executive of consulting firm Reddal. “This action might benefit Japan and Korea but definitely not the US.”
Global demand for new ships was “increasing and it will go on increasing because of this decarbonisation”, said Willmington of Lloyd’s List, referring to the appetite for eco-friendly ships. “I don’t think China wants to build 100 per cent of the world’s ships.”
Additional reporting by Christian Davies in Seoul and Leo Lewis in Tokyo
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