S. Korean shipbuilders beef up non-vessel businesses to prepare for lean times

South Korea's major shipbuilders are ramping up investment in non-vessel businesses — engines, warships and offshore plants — as they look to reduce their dependence on commercial shipping. The strategy reflects growing concern about risks in the core merchant vessel segment, including the rising competitive threat from China.

HD Hyundai Heavy Industries recently announced it would invest 1.1 trillion won ($809 million) to build two new factories in Ulsan: one for power-generation engines and another for manufacturing key components for small modular reactors. The engine factory is scheduled to be completed in the first half of 2028, with the SMR component plant to follow in the first half of 2029.

Hanwha, the parent of Hanwha Ocean, is pushing to expand its shipbuilding footprint in the United States. As part of that effort, the company last month offered up to $1.2 billion to acquire a 100 percent stake in Austal USA — the US operating subsidiary of Australian defense shipbuilder Austal — along with its operating assets. Austal USA has delivered 34 vessels to the US Navy and is a key contractor for major American naval programs. Through the acquisition, Hanwha aims to break into the US warship construction market.

Samsung Heavy Industries has been making its mark in the offshore plant sector. In June, it secured an order for the Delfin FLNG — the first floating liquefied natural gas production facility ever built for the United States — worth $2.9 billion. The win brought Samsung Heavy's total to seven of the 11 FLNG units ever ordered worldwide. At Gastech 2026, held recently in Bangkok, the company also received basic approval from a global classification society for a concept design applying its independently developed natural gas liquefaction system to FLNG topside equipment.

The push to broaden their business portfolios reflects the shipbuilders' desire to cushion themselves against the industry's cyclical downturns. The global shipbuilding market swings periodically between boom and bust, and a prolonged upturn can be followed by an equally prolonged slump.

South Korean shipbuilders know this from experience. In the late 2010s, a severe order drought pushed all three major yards into extended losses, forcing each to carry out workforce restructuring. Wary of a repeat, the companies have been working to reduce their reliance on commercial vessels.

China's rise is another factor driving diversification. Once overshadowed by South Korea, Chinese shipbuilders have seized control of the global market by combining competitive pricing with rapidly improving technology.

According to Clarkson Research, a UK-based shipping and shipbuilding analysis firm, China held a 76 percent share of the global vessel market in the January–August period this year, while South Korea accounted for just 16 percent. China is also making inroads into the high-value segment — including LNG carriers — that South Korean yards have long dominated.

To stay competitive, South Korean shipbuilders are developing high-value vessels such as LNG carriers and SMR-powered ships. However, global shipping companies now trust Chinese vessels far more than they once did, making it difficult to say with confidence that South Korean yards can beat China.

While domestic shipbuilders are accelerating their portfolio expansion, shedding their dependence on commercial vessels is expected to take considerable time. According to Korea Ratings, non-vessel businesses accounted for 35 percent of HD Hyundai Heavy Industries' total sales last year. The figures for Hanwha Ocean and Samsung Heavy Industries were lower still, at 22 percent and 23 percent, respectively.