Park Jae-hyuk is a seasoned journalist who has provided comprehensive coverage of South Korea's corporate dynamics, economic policies, industry challenges and the global positioning of Korean companies. Based on the articles he has written since joining The Korea Times in 2016, his investigative approach has helped readers understand corporate governance, economic trends and business strategies shaping South Korea’s economy.
Questions arise over profitability of Hanwha's deal with US Navy
Representatives of Hanwha Ocean, the Ministry of National Defense, the Defense Acquisition Program Administration and the U.S. Navy's Military Sealift Command Far East pose at Hanwha Ocean's shipyard on Geoje Island, South Gyeongsang Province, Monday, during a welcoming ceremony for the USNS Wally Schirra. Courtesy of Hanwha Ocean
By Park Jae-hyuk
HD Hyundai absent from bid for maintenance of US ammunition ship
Hanwha Ocean is facing speculation that it downplayed the low profitability of the U.S. Navy's recent order to overhaul a dry cargo and ammunition ship, so as to win the title of the first Korean shipbuilder to enter the U.S. naval vessel maintenance, repair and overhaul (MRO) market.
The speculation arises as the company's chief rival, HD Hyundai Heavy Industries (HHI), opted not to bid for the project, even though it had already signed a Master Ship Repair Agreement (MSRA) with the U.S. Naval Supply Systems Command on July 11. An MSRA is necessary for privately owned shipbuilders to enter the U.S. naval vessel MRO market.
Last Thursday, Hanwha Ocean announced that it became the first Korean shipbuilder to win an MRO order from the U.S. Navy, based on an MSRA signed on July 22.
As a result, the USNS Wally Schirra, a 40,000-ton dry cargo and ammunition ship, arrived at the company's shipyard on Geoje Island, South Gyeongsang Province, Monday, for three months of overhaul.
However, HD HHI previously pointed to the low profitability of projects to maintain the U.S. Navy's ammunition ships, compared to the projects to maintain its combatant ships, which are expected to bring more profits to Korean shipbuilders.
"We viewed that it is not reasonable to push ahead with MRO projects at this moment by emptying our docks filled with new naval ships under construction," Choi Tae-bok, director of HD HHI's naval and special ship business unit, said during a conference call on the company's second-quarter earnings, July 25.
"The U.S. Navy is currently willing to send ammunition ships for maintenance."
The shipbuilder said that it plans to enter the U.S. naval vessel MRO market next year, considering the profitability of orders and the capacity of its shipyard.
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Hanwha Ocean denied the speculation, saying that it signed a profitable contract with the U.S. Navy.
"The U.S. Navy did not fix the maximum cost for this project, so each shipyard was able to offer the price they want," a Hanwha Ocean spokesman said.
"It is groundless that the project's low profitability was the reason behind the absence of a bid from our competitor."
Hanwha Ocean declined to disclose the size of the order, but the project is estimated to cost around 20 billion won ($15 million). It is also uncertain whether the Korean firm competed with foreign shipyards to win the order.
"The U.S. Navy did not inform us of the specifics about other bidders," the Hanwha Ocean spokesman said.
The shipbuilder emphasized that its recent entry to the U.S. naval vessel MRO market has paved the way for the company to expand its presence in the global naval vessel MRO market, which is estimated to reach $57.7 billion this year.
"We are very proud to be the first Korean shipyard to undertake an MRO operation for a U.S. Navy vessel," the Hanwha Ocean spokesman said.
"We will continue to uphold the reputation of the Korean maritime defense industry with timely and high-quality MRO services."