Korean Owned, Vietnamese Operated | Hyundai-Vinashin Shipyard Thrives in Vietnam

– by Matthew Flynn, DNV

[dropcap]W[/dropcap]e have the best Korean technology and also the mentality of the Korean approach. We can do. We will do!” said Mr Lee Young Hoon, President & CEO of HVS. “We will become the best shipyard for bulk carriers in the world and we are preparing ourselves to achieve this ambition.”

He pointed out that HVS has achieved its success through its relationship with its parent company, Hyundai Mipo Dockyard Co Ltd, which is a 70% shareholder and controls all the commercial factors, design work, procurement, production and service guarantees for all the vessels built in the yard.

Sixteen of the ships built to date and another 11 ships in the order book are classed by DNV. As part of the journey to becoming a dedicated shipbuilder, Hyundai-Vinashin selected DNV for its ISO quality certification.

Mr Lee called DNV “a partner in our strategy to deliver the highest quality bulk carriers to the international market.”

He also pointed out that “We have 110 Korean shipbuilding specialists and 3,700 Vietnamese workers. We have completely transferred all of the best practices, quality control and discipline from our parent company Hyundai Mipo to our site in Vietnam.” He added that reputable ship owners, such as E.R. Schiffahrt, Norden, Geden, ESL Shipping and others, that have built here “enjoy productivity and quality that is the same standard as that at our parent yard in South Korea.”

In the first quarter of 2012, Hyundai-Vinashin reached a new milestone in its newbuilding history with the delivery of the 82,000 dwt bulk carrier named M/V Ams Pegasus I to HI-Invest. The vessel was the largest delivered by the Korean-managed shipyard since HVS first started building ships in 2008.

DNV is the primary classification partner for the shipyard. Hyundai-Vinashin’s first two vessels, delivered in July 2009 and October 2009, were built to DNV class.

These two 56,000 dwt bulk carriers for German owner E.R. Schiffahrt were selected as Significant Ships of 2009 by the Royal Institution of Naval Architects.

President Lee is very proud of what has been achieved by the yard in such a short period and very confident about the yard’s great prospects, pointing out, “we are facing a very weak demand for ships at the moment, but I really don’t have worries. We are fully backed by the financial strength of the Hyundai Group. This is when we are able to spend even more time strengthening the already high capability of our workforce. We invite international owners to visit the shipyard and see for themselves the high standards that are in place here.”

Market misconceptions
Only a one-hour drive from the bustling coastal city of Nha Trang in southeastern Vietnam, the shipyard is ideally positioned, with a 10-month dry season with low humidity and two-month rainy season from October to December. The site is protected from the open sea by a large island several kilometres offshore. The sunny tranquillity and beauty of the natural landscape of the nearby coastline is in sharp contrast to the somewhat long shadow cast by the market perception that any shipbuilding site in Vietnam is far behind one in China.

To clarify the first misconception, Mr Lee said HVS is recruiting from 10 universities in Vietnam and has 3,700 employees working in the yard. “Our experience of working in Vietnam is that the workers are in fact very optimistic, open-minded about international practices, passionate about craftsmanship and above-all very hardworking.”

The other challenge faced by HVS is that caused by the financial troubles at Vinashin Group.

“It’s true that the Vietnamese enterprise Vinashin Group has encountered some severe difficulties, but here I must emphasise that Vinashin’s involvement with the shipyard is as a contributor of the land. They have not invested financially in our shipyard and nor are they directly involved in any management of the shipyard,” said President Lee.

[pullquote]A high-quality bulk carrier builder, is like a vigorous Korean tree that has taken strong root in Vietnamese soil.[/pullquote]Hyundai Group signed the joint-venture contract with Vietnam Shipbuilding Industry Group (Vinashin), according to which Hyundai has a shareholding of 70% while Vinashin has a shareholding of 30%, in 1996 and Vinashin’s 30% stake is for land rental only. All investment in the shipyard has been done by Hyundai Heavy Industries Group and the shipyard has Korean management and key personnel (general managers), which means HVS is entirely independent from the Vinashin Group.

HVS operates as a subsidiary and subcontractor of Hyundai Mipo Dockyard (HMD), which takes full responsibility for business development, engineering and procurement. Virtually all the steel plate and equipment are shipped from South Korea, except for some foreign-licence-built equipment such as MacGregor cranes and hatch covers.

“Any clients who have come to our shipyard can immediately see that this shipyard achieves very high quality, like our parent company, but is just located in Vietnam,” said Mr Lee.

HVS does not have its own marketing division as it serves as a subcontractor of the Korea-based HMD according to a very specific agreement between the parent and subsidiary. The shipyard operates inside a Korean IT system which controls production and human resources.

HVS has adopted the same quality assurance and Health Safety & Environment systems as HMD. Ships are built by HVS according to a design and production package supplied by HMD.

HMD has delivered over 600 newbuildings and HVS is following the same path. Foreign owners such as Norden, for example, expect and experience the same attention to safety and quality as is the case at HMD.

“As a Danish company, our standards and the flag standards are extremely high. We have very strict standards with regard to safety and the environment. Actually, we are fully satisfied by HVS’s standard both in quality and safety,” said Kim Hai Nguyen, a Naval Architect & Site Manager with Norden, which has ordered six ships and taken delivery of four from HVS.

“We do bear in mind that Vietnam is a developing country where the challenges are substantial. At the same time, we don’t compromise on our quality requirements for the shipbuilding process and our care for workers,” said Mr Nguyen. “HVS positions itself as HMD located in Vietnam, and we have found this to be very true.”

Competitive edge to sharpen Since it started operation in 1999, HVS has acquired extensive know-how and expertise in shipbuilding techniques through repair and conversion work on various ship types, including sophisticated offshore projects.

HVS cut its teeth in the repair sector. Until it stopped ship repair work in 2011, it had repaired over 900 ships, including some very complex conversions and repairs such as lengthening Pure Car Truck Carriers by 28.8 metres, crane vessels, Floating Storage Offloading units and even platforms.

Since venturing into the newbuilding market in 2008, the company has focused on bulk carrier newbuildings from Handysize up to Kamsarmax-size and has successfully delivered 22 high quality ships to worldwide customers.

All shipbuilders are facing hard times based on continued concerns over the European debt crisis and the imbalance between supply and demand, and HVS is no exception.

Furthermore, due to the lack of finance, the poor charter market and the increasing number of idle vessels, contracting activity has slowed down considerably and the market prices remain under downward pressure while all related building costs (material, labour and other services) are increasing continuously.

HVS also senses severe competition from Chinese yards, which have access to cheap human resources and government support.

However, in this global downturn, HVS believes that strengthening its quality and competitiveness is the only way to survive and thrive.

“I don’t worry about the market situation since I see the current market conditions as an opportunity to train our workforce,” said President Lee. “We will develop qualified workers to prepare for the market upturn.”

There are 3,700 permanent staff and 1,000 subcontractors working at the shipyard. In addition to the focus on enhancing employees’ basic technical skills, HVS is also investing in developing management skills at the yard.

The yard has 110 Korean experts who are managers and general managers. Vietnamese staff are currently acting as middle management. A number of Vietnamese workers go each year to HMD for training for further promotion to upper management positions.

HVS’s Education & Training Department is mainly responsible for the training and development of Vietnamese workers. HVS organises many training courses guided by Korean instructors or well-known local professors. In addition, HVS regularly dispatches Vietnamese staff to HMD for training in up-to-date technology and “studying the working spirit in shipbuilding.”

According to Mr Park Tae Wook, Vice President of HVS, the shipyard has two shifts – 7:30 am to 5:00 pm for all types of work and then a night shift from 7:30 pm to 6:00 am, which is only allocated to steel cutting, block blasting and painting. The yard can handle 450 tonnes of steel a day and can now build 20 ships a year.

The yard’s productivity has improved gradually since 2008 and there is even further improvement ahead.

The pace of construction is 10 months from steel cutting to delivery, with 4.5 months for block fabrication, three months in the dock and 2.5 months at the quayside. This compares to eight months at HMD.

“The labour productivity is now 2.0 compared to 1 for Korea, and the target for the coming years is to bring this to 1.5 by 2014,” said Park Tae Wook, the Vice President for the Customer Support Division.

HVS also benefits from the leading edge design work of the HMD design office, which has 700 employees working on new designs on a regular basis. They use the state-of-the-art engineering system to constantly search to improve the portfolio of designs using the latest generation of engines, optimised hull forms and energy saving technologies.

In order to meet customers’ various needs for fuel efficiency and environmental features, HMD is currently focusing on developing the latest “ECO” designs to satisfy the increasing global demand for higher efficiency vessels.

Three areas of focus
Quality improvement, cost reductions and safety guarantees are currently HVS’s three focus areas.

HVS’s management highlights that the quality of the ships has been showing up quite well even compared to HMD, based on a strict consideration of non-conformity reports and guarantee claims.

Being selective with owners and other partners has been one of the keys to HMD’s and HVS’s success.

Over the past 15 years, HVS has achieved close and good cooperation with all the international classification societies, such as DNV, KR, ABS, NK, relating to both ship repairs and newbuildings.

“We are very happy with DNV as it operates at the highest level of professionalism and is one of the world’s top classification societies. Even minor comments and/or recommendations are carefully reviewed so as to ensure customer satisfaction,” said Mr Lee Jong Chan, General Manager of the Contract Management Department.

“From when HVS commenced the first newbuilding project with DNV until now, we sincerely appreciate DNV support and cooperation in all respects, especially its willingness to clarify issues at the initial stage,” said Mr Lee Jong Chan.

HMD is known as the world’s leading shipbuilder for medium-sized Product Carriers, Containers, Pure Car and Truck Carriers, Ro-Ro/Con-Ro Vessels and LPG Carriers. Due to HVS’s abilities, HMD has recommended some customers to order certain types of bulk carriers from HVS to get the same quality and safety standards as from HMD but at a better price.

HVS’s status is as HMD’s subcontractor for construction while HMD will remain as the main contractor and will undertake all the Contract’s guarantees and responsibilities.

At this moment, HVS only focuses on the construction of bulk carriers but other ship types may be considered in the future, depending on the market situation.

“As always, HMD has a glorious track record of various ship types and will be able to support us in building other ship types based on their know-how and the experience we have been accumulating,” said President Lee.

This article was written by Matthew Flynn first appeared in the May 2012 edition of DNV’s magazine Bulk Carrier Update.