US Navy Contracts Ignite Intense Shipbuilding Race in South Korea

South Korean shipbuilders are competing to break into the U.S. Navy’s maintenance, repair, and overhaul (MRO) sector as well as the market for new vessel construction, following Washington’s efforts to boost its naval strength via partnerships with both South Korea and Japan.

At present, only HD Hyundai and Hanwha Ocean have been approved to take part in U.S. Navy MRO initiatives amongst South Korean companies. Nonetheless, according to industry insiders, other shipbuilding entities are aiming to enter this domain as well.

As interest increases, numerous major and medium-sized South Korean shipbuilding yards are assessing submissions for a Master Ship Repair Agreement (MSRA) with the U.S. Navy Supply Systems Command (NAVSUP). This agreement is essential before they can compete for naval maintenance contracts. Firms that obtain MSRA approval following a Naval examination will be eligible to engage in various Maintenance, Repair, and Overhaul (MRO) initiatives.

Sources indicate that Samsung Heavy Industries and K Shipbuilding are among the companies contemplating entering the market.

According to a source, "It isn’t especially challenging to secure an MSRA." Many South Korean shipyards are gearing up to join the U.S. naval maintenance, repair, overhaul (MRO), and new construction market. There is anticipation for opportunities spanning various vessel categories, including but not limited to warships.

The MSRA application procedure is getting quicker. HD Hyundai, the initial South Korean shipbuilder to obtain an MSRA, required over a year from submission to certification. In contrast, Hanwha Ocean reduced the timeline to roughly seven months and secured an MRO deal for a logistical support vessel merely a month post-certification. HJ Shipbuilding & Construction, having submitted their application early this year, is currently nearing the conclusion of the approval stage.

By January 2025, the U.S. Navy has relaxed the bidding regulations for specific MRO contracts related to logistics support vessels, permitting companies to participate even without obtaining an MSRA certification.

In light of recent events, U.S. Navy Secretary John Phelan plans to tour multiple shipyards in Geoje, South Korea, later this month. According to industry insiders, the purpose of his trip is likely to assess the shipyards' capacities before possible MRO contract announcements.

A separate legislative hearing aimed at revitalizing America’s shipbuilding sector is set for May 1st. During this session, lawmakers plan to address the Ships for America Act and the Save Our Shipyards Act, likely leading to further advancements on connected legislation. Notable participants include Senators Mark Kelly (D-Ariz.) and Todd Young (R-Ind.), along with Representative John Garamendi (D-Calif.). These individuals have jointly supported comparable initiatives in the past.

Concerns regarding intense competitive pricing are now surfacing. "With increasing competition from South Korean shipyards vying for U.S. Navy contracts, there is a potential danger of plummeting prices leading to financial losses," stated Kim Dae-young, a military analyst at the Korea Research Institute for National Strategy. "The government might want to look into bilateral discussions concerning the tender procedures. Additionally, forming coalitions between different shipbuilding companies could serve as another viable option."

Based on a March report from the Korea Trade-Investment Promotion Agency (KOTRA), the U.S. Navy’s yearly new shipbuilding sector is valued at approximately 43 trillion won ($31 billion), while the MRO market is projected to be around 11 trillion won ($8 billion).