{"id":2199779,"date":"2022-12-26T10:32:13","date_gmt":"2022-12-26T10:32:13","guid":{"rendered":"https:\/\/www.nknews.org\/koreapro\/?p=2199779"},"modified":"2023-04-05T16:10:29","modified_gmt":"2023-04-05T07:10:29","slug":"why-a-south-korean-defense-contractor-is-betting-on-green-shipping","status":"publish","type":"post","link":"https:\/\/koreapro.org\/2022\/12\/why-a-south-korean-defense-contractor-is-betting-on-green-shipping\/","title":{"rendered":"Why a South Korean defense contractor is betting on green shipping"},"content":{"rendered":"
Hanwha Group has partially acquired Daewoo Shipbuilding & Marine Engineering (DSME), taking a <\/span>49.3%<\/span><\/a> controlling stake in the shipbuilder. And this development could be a boon for efforts to push forward more environmentally friendly shipping practices.<\/span><\/p>\n DSME is one of South Korea\u2019s largest shipbuilding companies and had a successful year, recording a much <\/span>higher value of orders<\/span><\/a> than its initial yearly target thanks to increased demand for <\/span>LNG<\/span><\/a> carriers<\/span><\/a>.<\/span><\/p>\n But DSME has struggled with uncertainty and losses, notably due to <\/span>setbacks<\/span><\/a> in Indonesia\u2019s submarine acquisition program. The company\u2019s short-term debt is around $2.2 billion (2.9 trillion KRW).<\/span><\/p>\n In addition, DSME <\/span>demanded<\/span><\/a> that its unionized subcontract workers compensate the company with $37 million (47 billion KRW) for a <\/span>strike<\/span><\/a> earlier this year. The workers have asked the company\u2019s new owners to retract DSME\u2019s damage claim, setting the stage for awkward relations with labor from the get-go.<\/span><\/p>\n The shipbuilding industry has also faced <\/span>rising costs<\/span><\/a> for critical materials, such as steel and a labor shortage due to the pandemic, which led to financial losses.<\/span><\/p>\n However, investors have expressed cautious optimism. Hanwha has made no secret of its desire to become <\/span>Korea\u2019s Lockheed Martin<\/span><\/a> and a top 10 global defense company by 2030. Investors hope that the merger between Hanwha System \u2014 one of the primary suppliers of combat systems and sensors for South Korean-built warships \u2014 and DSME will lead to synergistic benefits, including <\/span>cost reduction<\/span><\/a> and <\/span>expanded<\/span><\/a> defense production capacity.<\/span><\/p>\n But while the merger could have immediate benefits for South Korea\u2019s defense industry, another area that could see a significant boost is green shipping. DSME has already made significant investments in related technology, and Hanwha will assuredly want to take advantage of this to remain competitive and recoup the <\/span>$1.5 billion<\/span><\/a> it spent on the M&A venture.<\/span><\/p>\n Everything may not be smooth sailing, however, as insufficient supplies of affordable green energy could limit the sector\u2019s potential.<\/span><\/p>\n WE\u2019RE GONNA NEED A GREENER BOAT<\/b><\/p>\n Just a few months before the acquisition, DSME <\/span>developed<\/span><\/a> a land-based test site to develop and advance eco-friendly and smart ship technologies. It also signed an agreement with local companies to develop next-generation green ship engines. And in 2021, the company <\/span>began<\/span><\/a> to develop a lithium battery-based energy storage system (ESS) for larger ships.<\/span><\/p>\n Hanwha hopes to continue these projects by injecting DSME with streamlined capital, part of a broader play at <\/span>decarbonizing the shipping industry<\/span><\/a>. According to the International Maritime Organization (IMO), a U.N. body responsible for the safety and security of shipping and the prevention of marine pollution by ships, shipping <\/span>currently accounts for nearly 3%<\/span><\/a> of the world\u2019s carbon dioxide emissions.<\/span><\/p>\n Although Hanwha is likely more excited about its growth prospects as an internationally renowned defense firm, it will not be able to ignore the sheer volume of business that DSME does with the civilian sector worldwide. This business relationship bodes well for green shipping.<\/span><\/p>\n According to a <\/span>policy recommendation<\/span><\/a> by Solutions for Our Climate (SFOC), a climate research and advocacy group, South Korea imports and exports 99.7% of all its goods by sea. Having acquired one of the world\u2019s <\/span>leading<\/span><\/a> shipbuilding companies, Hanwha has to embrace the transition to clean energy in shipping rapidly, or it risks losing the foothold and dominance that DSME has established in the shipping and shipbuilding industries.<\/span><\/p>\n As evidenced by Daewoo\u2019s research and development, ROK shipbuilders are developing low-emission transport vessels and eco-friendly marine fuel. This is in line with the IMO\u2019s <\/span>plan<\/span><\/a> to cut carbon emissions by half the levels of 2008 by 2050. However, those measures are insufficient due to U.S. and EU <\/span>demands<\/span><\/a> that the IMO lift the target to zero emissions by 2050.<\/span><\/p>\n In 2021, the U.S. and 21 other countries signed the <\/span>Clydebank Declaration<\/span><\/a> for Green Shipping Corridors, an agreement to reduce carbon dioxide and other greenhouse gas emissions from shipping. The signatories committed to establishing six \u201czero-emission maritime routes,\u201d or green corridors, for ships using clean marine fuels such as methanol or ammonia by 2025.<\/span><\/p>\n Though not a binding treaty, the Clydebank Declaration could be used as a <\/span>pretext<\/span><\/a> for establishing trade barriers, which shipbuilding companies from other countries could seek to exploit. Hanwha\u2019s acquisition of DSME and streamlining it toward profitability could serve as an opportunity to invest further in green shipping in order to sidestep such barriers.<\/span><\/p>\n