On Dec. 19, the U.S. Congress introduced the SHIPS for America Act, which aims to significantly bolster the U.S. merchant shipping industry by increasing the number of U.S.-flagged merchant ships from 80 to 250 within the next decade. The introduction of this bill has sparked optimism within the Korean shipbuilding industry, which stands to benefit from the proposed legislation.
The SHIPS Act seeks to revitalize the U.S. domestic merchant shipping industry and strengthen the U.S. supply chain capacity. One of the key provisions of the bill allows ships built abroad to apply for the Strategic Merchant Fleet, provided the shipowner holds U.S. citizenship. This provision is particularly advantageous for South Korean shipbuilders, as it opens up new opportunities for collaboration and orders from U.S. shipowners.
The Financial Times (FT) analyzed the bill’s introduction, noting that it reflects a bipartisan recognition of the need to enhance the shipbuilding industry. Although the bill is likely to be automatically discarded with the end of the 118th Congress this month, the bipartisan recognition of the need to strengthen the shipbuilding industry suggests it will be reintroduced in the next session, FT stated, adding that it is highly likely to pass if reintroduced.
The bill also includes provisions to exempt taxes on overseas repair costs for ships or shipowners included in the Strategic Merchant Fleet. Currently, U.S. law requires ships used in trade to pay 50% of repair costs as taxes if repaired abroad. The Ship Act raises this tax rate to 70% and to 200% if repaired in countries of concern like China. However, the bill provides tax exemptions if the ship or shipowner makes their best effort to repair in the U.S. but ends up repairing abroad. This provision is expected to benefit South Korean shipbuilding companies, which could handle the construction and repair of merchant ships included in the Strategic Merchant Fleet.
A shipbuilding industry official commented on the potential impact of the bill, stating, “Although the bill has not yet been passed, it is certain to have a positive impact on the Korean shipbuilding industry.” The opening of cooperation paths with the U.S. in merchant ship construction is expected to increase order opportunities for all domestic shipbuilding companies, including the so-called “Big 3” – HD Hyundai Heavy Industries, Samsung Heavy Industries, and Hanwha Ocean.
Unlike the military ship maintenance, repair, and overhaul (MRO) cooperation mentioned by President-elect Donald Trump, which requires pre-signing a maintenance, repair, and supply agreement (MSRA) to qualify, merchant ship orders are open to all companies. In the merchant ship sector, South Korea boasts a 30-40% order share despite competition from China. Therefore, it is anticipated that U.S. shipowners may place orders with Korean shipbuilding companies for merchant ships by the deadline of 2029 to participate in the Strategic Merchant Fleet starting next year.
Among domestic companies, Hanwha Ocean is expected to benefit the most from the SHIPS Act. Hanwha Ocean recently acquired the Philly Shipyard in Philadelphia, marking the first time a domestic company has acquired a U.S. shipyard. The Philly Shipyard specializes in constructing coastal transport merchant ships and has supplied about 50% of the large merchant ships subject to the Jones Act, such as petrochemical product carriers (PC ships) and container ships.
Additionally, the U.S. provides incentives such as financial and employment support if foreign companies invest in U.S. shipyards, military shipyards, and equipment companies. As a result, HD Hyundai Heavy Industries is also exploring shipyard properties in the U.S.
Source: Business Korea
