South Korea is expected to win the U.S. Navy’s first ship maintenance, repair and operations (MRO) order for a project involving the overhaul operations of a large replenishment oiler for the U.S. Navy 7th Fleet, the largest U.S. fleet in the Western Pacific.
Industry sources said Hanwha Ocean has submitted an application for the project and is now waiting for the results of the bidding, which is expected to be announced this month. If successful, Hanwha Ocean will make its first foray into the U.S. naval defense market’s ship MRO market, which is worth 20 trillion won (about $14.8 billion) annually.
For a long time, the U.S. shipbuilding industry has turned to its allies for ship repairs because of a lack of ship production and repair capabilities due to labor shortages.The Secretary of the U.S. Navy has visited Korean shipyards earlier this year to survey the technology of the Korean shipbuilding industry. At the same time, the Korean shipbuilding industry is also working to expand overseas shipbuilding business to meet the U.S. ship repair needs.
Expectations run high as South Korea’s shipbuilding industry may see its first order in the 20 trillion won annual naval MRO market
The U.S. Navy’s MRO bidding program involves a 40,000-ton replenishment oiler, and the shipyard needs to dismantle parts and completely refurbish the ship during the overhaul, with an order worth tens of billions of won.
The bidding companies must hold a Major Ship Repair Agreement (MSRA), a heavy maintenance qualification awarded by the US Naval Supply Systems Command.HD Hyundai Heavy Industries and Hanwha Ocean have signed up for the MSRA in July of this year. HD Hyundai Heavy Industries and Hanwha Ocean signed the MSRA in July of this year.
It is reported that the U.S. Navy since June this year to promote the MRO project of 40,000-ton replenishment oiler, and to encourage South Korean shipbuilders to participate in the bidding, the industry therefore believes that the ultimate purpose of this move is the ship MRO orders entrusted to South Korean shipbuilders.
In fact, Carlos Del Toro, Secretary of the U.S. Navy, visited HD Hyundai Heavy Industries Ulsan Shipyard and Hanwha Ocean Geoje Shipyard as early as February this year, and expressed his willingness to cooperate with Korean shipbuilders during his visit, stating that he was “impressed by the level of digitization and real-time monitoring of shipbuilding processes. Carlos Del Toro said he was “impressed by the level of digitalization and real-time monitoring of the shipbuilding process”.
“The U.S. Navy has previously entrusted MRO orders for its Western Pacific fleet to Japanese, Philippine and Indian shipyards, but with the entry of South Korean shipbuilders, the U.S. is turning its attention to South Korea,” the industry source said.
It is worth noting that HD Hyundai Heavy Industries did not participate in the 40,000-ton replenishment oiler MRO project that the U.S. Navy is bidding for this time due to the recent increase in new ship orders as well as shipyard capacity factors. “There will be more opportunities ahead as the U.S. Navy fleet ages and the market grows in the future, and the company plans to seriously participate in the MRO program starting next year,” it said.
In 2024, the U.S. Department of Defense budget for ship MRO is $13.6 billion, and overseas shipbuilders can bid on a portion of non-combat ship MRO projects. The reason is that, according to the U.S. “Jones Act,” the U.S. Navy combat ships must be built and maintained in the U.S. mainland, and only non-combat ships (e.g., replenishment oilers) can be entrusted to overseas shipyards. However, as the number of aging U.S. ships gradually increase, the U.S. may relax the restrictions in the future.
In addition, Korean shipbuilders are planning to promote the naval MRO business while ensuring that they take orders for high value-added ships. Hanwha Ocean planned to complete the acquisition process and apply for shipbuilding qualification for the Philadelphia shipyard in the U.S. by the end of this year, and the two sides signed a 100% equity acquisition agreement in June this year, valued at 130 billion won. HD Hyundai Heavy Industries is also reportedly inspecting local shipyards in the U.S.
Not only that, but the U.S. Navy is also looking at the shipbuilding capabilities of South Korean shipbuilders. carlos Del Toro said in April of this year, “We are open to working with South Korea and Japan to build warships.”
