Hyundai Heavy Industries Co., Ltd.

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The world’s largest maritime industrial complex


A story of three actors


The global shipbuilding industry has had a challenging few years on the back of a worldwide contraction in trade volumes and a consequent decline in demand for commodity ships and offshore vessels. With global macroeconomic prospects improving in the near term, the industry is also expected to rebound in 2018.


In this context, South Korea, the world’s largest shipbuilding nation, and Saudi Arabia, the world’s largest oil-exporting nation, reached an agreement in 2017 to take their long-standing business relationship to the next level. The story of this renewed investment commitment features three main actors with a deeply rooted business partnership – Saudi Aramco, the National Shipping Company of Saudi Arabia (Bahri) and Hyundai Heavy Industries (HHI).


Saudi Arabia has been exporting oil for almost 80 years. The first tanker load of Saudi crude oil was exported in 1939 on board of the D.G. Scofield, a ship that carried less than one-twentieth of a modern oil tanker’s load. Today Saudi Arabia has grown to be the world’s largest oil exporter, accounting for roughly 18% of global oil exports in 2016.


To serve Saudi Aramco’s captive market, Bahri was established by the Saudi government in 1978 to support the Kingdom’s crude oil export growth. The flag carrier has progressively diversified beyond oil barges to add the shipping capacity for chemicals, dry bulk and multi-purpose cargo. Today, Bahri has a fleet of 90 vessels, of which 43 are Very Large Crude Carriers (VLCCs). This makes Bahri the world’s largest owner and operator of VLCCs, with a total of 11.6m of deadweight tonnage (DWT).


Over the past decades, 34 of Bahri’s vessels were supplied by our third actor, Korea-based HHI. HHI started fabricating vessels in 1972, while HHI’s offshore structures unit commenced in 1976, when the yard received an order from Saudi Arabia for the fabrication of 89 jackets and offshore structures to serve Jubail’s industrial projects, in the Kingdom’s eastern region. Over the years, HHI has grown to become the world’s largest shipbuilding company and to operate the world’s largest offshore yard. With its only shipyard facilities located in Ulsan, South Korea, HHI has a global market share of approximately 10% and a total production capacity of 200m DWT in 2017.



Seizing the opportunity


In 2016 Saudi Arabia launched its Vision 2030 plan to overhaul the economy, reduce its dependence on oil resources and localize value-added components of the supply chain across all sectors. As a key Vision 2030 driver, Saudi Arabia is aiming to build local industrial capacity for major imported items, including military equipment and automotive vehicles, as well as oil rigs and shipping vessels. The Vision’s launch provided the spark for our story to begin.


The Kingdom’s national oil company, Saudi Aramco, for decades hired offshore vessels and oil rigs from third-party suppliers such as HHI to service its operations. In line with its vertical integration strategic approach, however, and in line with Vision 2030 targets, Aramco is now taking steps to expand into offshore services and operations.


On the one hand, Vision 2030 represented the perfect ground for Saudi Aramco and Bahri to incentivize a closer relationship with a main global supplier such as HHI. On the other hand, Vision 2030’s investment incentives provided HHI with the opportunity to stay ahead of competitors during a global industry slowdown, strengthen relationships with major customers and expand its shipbuilding capacity beyond the Ulsan shipyard.

These factors led to the December 2017 Saudi Aramco, Bahri, HHI and UAE-based engineering company Lamprell signing of an agreement to jointly create, develop and operate a $5.2bn integrated maritime yard, the International Maritime Industries (IMI) at the King Salman International Complex for Maritime Industries in Ras Al Khair, on the eastern coast of Saudi Arabia.


The nearly 12m-square-metre IMI facility will be the largest in the region in terms of scale and capacity. As the anchor project of the maritime complex, IMI will supply Saudi Aramco and Bahri with an impressive mix of products and maintenance, repair and overhaul (MRO) services. At full capacity the yard will be able to deliver 40 vessels, including three VLCCs, and four offshore rigs, as well as service over 260 maritime products each year. With the first products expected to roll out from IMI in 2019, the yard will reach full capacity in 2022.


The 60-year joint venture contract is targeting both local and global demand. Locally, IMI has stipulated off-take agreements with both Saudi Aramco and Bahri. Around 50% of the IMI’s rig fabrication capacity will be allocated to Saudi Aramco, while 30% of the shipbuilding capacity will be purchased by Bahri. The localization of MRO services, oil rigs and vessels will help the two Saudi shareholders to optimize costs, demand specifications and increase overall efficiency.


The remaining production capacity – 50% of oil rigs and 70% of shipbuilding – will be used by the Korean shipbuilding giant to serve the global market through its existing sales network. Given its strong shareholder base and competitive location, IMI will be competing with regional yards in the UAE and Bahrain, as well as Asian producers, which have dominated the market in the past decades.


IMI represents the first shipyard beyond the Korean national borders to which HHI has ever provided investment capital and technical support. With this investment, HHI will be able to benefit from Saudi Aramco’s pulling power to quickly scale up, capture more of the global market and influence market forces.



The wider impact


HHI’s investment and the broader King Salman International Complex for Maritime Industries fulfill many of the key elements of Vision 2030 and the In-Kingdom Total Value Add (IKTVA) program. The latter is a program launched by Saudi Aramco in 2015 to increase its local procurement ratios and support the growth of Saudi-based contractors.


As a high-level goal, Vision 2030 aims to grow Saudi Arabia’s economy from being the 19th-largest global economy to enter the top 15 by 2030. The maritime complex in Ras Al Khair, of which IMI will be the anchor tenant, is expected to contribute $17bn to the Kingdom’s GDP, of which $12bn is expected to come from the import substitution of maritime products and services. Localization is arguably the most important factor contributing to this goal. Vision 2030 aims to increase the localization of the oil and gas sector from 40% to 75% by 2030. Through its IKTVA targets, Saudi Aramco is expecting to contribute by achieving 70% localization of all spending by 2021.


The IMI joint venture investment with HHI will play an important part towards meeting the localization goal. The shipyard is aiming to utilize 60% local content by 2020 and 80% by 2030. This will mostly involve tapping into and potentially expanding the local steel value chain, as steel products are expected to contribute to approximately 90% of the shipyard’s raw materials. In smaller amounts, the shipyard activities will require the provision of bronze and aluminum supplies. The localization of IMI’s procurement is therefore expected to create further investment opportunities in the steel, bronze and aluminum value chain in the Ras Al Khair industrial complex.


Vision 2030 aims to lower the rate of unemployment from 11.6% to 7% by 2030, with Saudi Aramco’s IKTVA program contributing to the indirect employment of 500,000 new hires by 2021. The Ras Al Khair complex by itself is expected to create more than 80,000 direct and indirect jobs by 2030. As part of this goal, the HHI-backed yard is planning to employ 6,000 people by 2020, of which 27% will be Saudi, and 15,000 employees by 2030, with a 51% Saudiization rate.


As part of the investment and technical support agreement, HHI is expected to begin with a heavy presence of Korean foremen at the complex and gradually hand over operations to Saudi staff. In parallel, the newly established National Maritime Academy (NMA) in Ras Al Khair will be providing Saudi professionals with training in the skills demanded by the maritime and shipbuilding industry. The NMA will initially train 1,400 students per year, and later expand capacity to 2,000 students.


Lastly, Vision 2030 initiatives are expected to raise the share of non-oil exports from 16% to 50% of non-oil GDP. As part of the IMI’s off-take agreements, the new shipyard will export 50% of its oil rigs and 70% of its shipbuilding production capacity. At full capacity, that should consist of two offshore oil rigs and approximately 28 vessels targeting the global market.


In conclusion, HHI’s recent investment in Saudi Arabia provides a case study of how a long-term trading partnership in the global oil export value chain was able to find in Vision 2030 the right platform to evolve. HHI, along with Saudi Aramco and Bahri, were able to seize the opportunity to strengthen their relationship while pursuing an aggressive growth strategy during a worldwide industry downturn.


Global presence
Exporting to Over 50 Countries
Date of establishment globally
23 Mar 1972
Date of Saudi market entry
Dec, 2017
Annual revenue globally
2016: appx $36bn
Total investment in Saudi Arabia
Saudization rate
27% by 2020, 51% by 2030
Percentage of local content achieved
60% by 2020, 80% by 2030
Hyundai Heavy Industries Co., Ltd.
  • Ras Al Khair Industrial City
    • Established JV Shipbuilding Company with Saudi ARAMCO, BAHRI, and Lamprell.
  • Shipbuilding/Heavy Industries company
  • 16,000
    Employees Worldwide
  • 6,000 by 2020, 15,000 by 2030
    Employees in Saudi Arabia
  • Republic of Korea
    Country of Origin