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U.S. Navy's $30-billion plan to upgrade warship fleet could benefit Korea's shipbuilders: Kotra

Published: 02 Mar. 2025, 17:44 Updated: 02 Mar. 2025, 18:17

SHIN HA-NEE
[email protected]

The U.S. Navy vessel Wally Schirra undergoes maintenance in Hanwha Ocean’s Geoje shipyard in South Gyeongsang on Sept. 3, 2024. [HANWHA OCEAN]

Korea could capitalize on the U.S. Navy’s 30-year plan to spend $30 billion annually to expand its warship fleet, a report from the Korea Trade-Investment Promotion Agency (Kotra) suggests, as the country's export-driven economy continues to seek a breakthrough amid rising trade barriers and slowing export momentum.

However, the report also warned against the potential risks of Washington imposing tariffs on domestic shipbuilders over their usage of Chinese steel products.

Published on Sunday, the Kotra report highlighted potential opportunities for domestic shipbuilders offered by recent U.S. bills aiming to strengthen naval capabilities, including the Ensuring Naval Readiness Act and the Ensuring Coast Guard Readiness Act.

The bills aim to permit the U.S. Navy to construct military vessels, or key components, in a foreign shipyard located in a NATO member country or an Indo-Pacific country that has signed a mutual defense agreement with the United States.

The U.S. Congressional Budget Office estimated in January that the U.S. Navy would allocate an average of $30 billion per year until 2054 to bring the number of its warships from the current 296 to 381.

A view of HD Hyundai Heavy Industries' Ulsan shipyard [HD HYUNDAI]

Considering the number of ships set to be retired during this period, the U.S. Navy will need to build a total of 364 new ships over the next three decades, averaging 12 new ships per year.

Moreover, demand for commercial vessels could also surge as the Ships for America Act proposes to expand the United States’ commercial ship fleet from the current 93 vessels to 250 by 2034.

The bills could open new markets for Korean companies, the report said, especially given China’s expanding presence in the shipbuilding industry for both commercial and military vessels.

“Cooperation with allies and partner nations will be one of the key focuses in this year’s upcoming National Maritime Strategy [by the Department of Transportation],” the report said, indicating that the renewed emphasis on alliances could nudge Washington toward expanding naval collaboration with Korea and Japan.

The Korean government said in February that it would sign a Reciprocal Defense Procurement Agreement with the United States, which could further benefit Korean arms suppliers by providing an exemption from the Buy American Act.

Kotra suggested that the maintenance, repair and overhaul (MRO) market should be the primary focus for now, as Korea and Japan are vying for new MRO contracts with the United States.

Hanwha Ocean, which signed two MRO contracts with the U.S. military last year, aims to clinch up to six MRO contracts this year, and HD Hyundai is targeting two to three contracts.

Korean shipbuilders are looking to secure U.S. production sites to tap into government incentive measures as well. Hanwha Ocean jointly acquired Philadelphia-based shipbuilder Philly Shipyard with Hanwha Systems in June for $100 million. It is the first time a domestic shipbuilder has acquired a U.S. shipyard.

However, Kotra warned of tariff uncertainty, as U.S. tariffs on Chinese steel products could affect domestic shipbuilders given the rising market share of Chinese steel plates in the industry. If the Trump administration devalues the dollar, the weak greenback could also hurt shipbuilders’ revenue, considering the two to three year gap between orders and the materialization of revenue.

The report added that weak shipbuilding infrastructure in the United States could hamper Korean shipbuilders’ production if they decide to relocate their shipyards to American shores.

BY SHIN HA-NEE [[email protected]]