HHI's Bold Move

Shipbuilder decides to build dry dock to take on more orders for offshore oil storages

Hyundai Heavy Industries Co., the world's largest shipbuilder, will build a new dry dock, its 10th, capable of building 1 million-ton ship, industry sources said recently.
They said the new shipbuilding facility will be built to boost the company's capacity to build more number of ships to cope with rising demand for the construction of new ships around the world and the new dry dock will be located at its Ulsan shipyard and details are being worked out so that the work will begin in November for completion in early 2009.
HHI's decision to build a new dry dock at its Ulsan yard has been drawing a heavy attention both in and out of the industry as it comes amid the situation where other Korean shipbuilders have been relocating their operations to foreign countries like China, Vietnam and the Philippines, for lower wages and cheap land prices. The company obviously felt that it has to expand its docks to cope with the rising orders for new ships, which is considered a bold move.
A dry dock is a facility where ship blocks built on land is assembled and put together and filled with water to float the ships. It needs a lot of land and costly to build, which is why Korean shipyards build dry docks in foreign countries where land is cheap and wages are low.
HHI has been building ships with its variety of technologies such as the land construction method, the replacement construction method and the effective construction method to build ships without using dry docks, but it has reached a limit for those methods, requiring the shipbuilder to build a new dry dock.
The HHI's bold move has drawn a lot of attention because it came amid other shipbuilders have been relocating their operations to foreign countries. Samsung Heavy, Daewoo Shipbuilding and STX have all rather decided to build or have already been building dry docks in China, Vietnam and the Philippines, at the risk of a change that their shipbuilding technologies might be given away to foreign shipbuilders. HHI apparently doesn't want to take risks of having its technologies exposed to thieves and chose to build a new dry dock in the country.
HHI doesn't want to gamble by relocating its operation overseas, especially, with China's shipbuilding industry eager to catch up with Korea's in the shortest possible time and also it looks forward to handle increasing ship orders down the road with the addition of a new dock facility. Its projected 10th dry dock will be able to build 1 million-ton(dwt) ship, the same as its third dry dock in operation. The company will shorten the construction period as much as possible, taking only a year to complete, although it usually takes three years to build a large dry dock.
The company is confident that it can complete the project in a year because the new facility will be built inside its Ulsan yard, saving time to acquire a land.
Its rival shipbuilders such as Samsung Heavy and Daewoo Marine and Shipbuilding feel that HHI's decision to build a new dry dock has to do with its plan to upgrade its capacity to build marine plant facilities which has been considered a weak area in its operation.
HHI has been building floating petroleum storages by assigning the bottom part of the facility to its affiliate Hyundai Samho Heavy Industries and it will build oil drilling platform and put them together, not an easy job.
A shipbuilding industry source said HHI will have many orders for FPSO in the days to come and its new dry dock will be a great help to the company as it will boost its order receiving capacity.
In the meantime, HHI's Q2 revenue and operating profit amounted to 3.867 trillion won and 417.5 billion won respectively, the company said July 10.
The sales revenue and net profit(389.4 billion won) beat expectations, but operating profit fell below the market expectations.
The company said the sales increased substantially all across the entire sectors of its operations, adding that shipbuilding, ship engine boosted their profit compared to the same period last year. The company explained that a large boost in net income has been due to reductions in non-operating expenses, and large profits made by its affiliates.
But some analysts seem not so encouraged with the HHI's performance because they have been expecting its operating profit to hit around 400 billion won for the quarter. Some said it came as a shock.
Operating profit loss is due to HHI paying 10 million won to its employees as summertime special performance bonus package, which amounted to 80 billion won and analysts said if the bonus were not paid the operating profit would have overshot the expectations. nw

Chairman Chung Mong-joon of Hyundai Heavy Industries Co.: A view of HHI's dockyard in Ulsan.