U.S. Ships Act Promises Major Boost for Merchant Shipping
On December 19, the U.S. Congress introduced the SHIPS for America Act, a significant piece of legislation aimed at revitalizing the U.S. merchant shipping industry. The bill proposes to increase the number of U.S.-flagged merchant ships from 80 to 250 over the next decade. This ambitious plan has generated optimism within the South Korean shipbuilding sector, which stands to gain from the proposed changes. The SHIPS Act not only seeks to enhance the domestic shipping industry but also aims to strengthen the U.S. supply chain capacity.
Key Provisions of the SHIPS Act
The SHIPS for America Act includes several important provisions designed to bolster the U.S. shipbuilding industry. One of the most notable aspects is the allowance for ships built abroad to apply for the Strategic Merchant Fleet, provided that the shipowner is a U.S. citizen. This provision opens new avenues for South Korean shipbuilders, enabling them to collaborate with U.S. shipowners and potentially secure more orders.
Additionally, the bill proposes tax exemptions on overseas repair costs for ships included in the Strategic Merchant Fleet. Currently, U.S. law imposes a 50% tax on repair costs incurred abroad. The SHIPS Act seeks to increase this tax rate to 70% and even 200% for repairs conducted in countries deemed as concerns, such as China. However, if a shipowner demonstrates a genuine effort to repair their vessel in the U.S. but ultimately opts for overseas repairs, they may qualify for tax exemptions. This provision is expected to benefit South Korean shipbuilding companies, which could handle both the construction and repair of merchant ships within the Strategic Merchant Fleet.
Industry analysts, including those from the Financial Times, have noted that the bipartisan support for this bill reflects a growing recognition of the need to strengthen the shipbuilding sector. Although the bill may not pass before the end of the 118th Congress, its introduction signals a commitment to reintroducing it in future sessions, where it is likely to gain traction.
Implications for the Korean Shipbuilding Industry
The SHIPS for America Act is poised to have a significant impact on the South Korean shipbuilding industry. Industry officials have expressed optimism about the potential benefits of the bill, even before it is officially passed. The opening of cooperation channels with the U.S. in merchant ship construction is expected to create more opportunities for domestic shipbuilders, particularly the “Big 3”: HD Hyundai Heavy Industries, Samsung Heavy Industries, and Hanwha Ocean.
Unlike military ship maintenance agreements, which require pre-signing contracts, the merchant ship sector is more accessible. South Korea currently holds a 30-40% share of global merchant ship orders, despite fierce competition from China. This positions South Korean shipbuilders favorably as U.S. shipowners look to place orders for merchant ships by the 2029 deadline to participate in the Strategic Merchant Fleet.
Among the domestic companies, Hanwha Ocean is anticipated to benefit the most from the SHIPS Act. The company recently made headlines by acquiring the Philly Shipyard in Philadelphia, marking a significant milestone as the first South Korean firm to own a U.S. shipyard. The Philly Shipyard specializes in constructing coastal transport merchant ships and has supplied a substantial portion of large merchant vessels subject to the Jones Act.
Furthermore, the U.S. government offers incentives for foreign companies that invest in U.S. shipyards, military shipyards, and equipment manufacturers. As a result, HD Hyundai Heavy Industries is also exploring opportunities to acquire shipyard properties in the U.S. This trend indicates a growing collaboration between U.S. and South Korean shipbuilders, which could reshape the landscape of the global shipbuilding industry in the coming years.
