High Royalties to Cut Into Shipbuilding Profits

Monday, December 19, 2005
South Korean shipbuilders are paying large royalties on a core foreign technology for manufacturing liquefied natural gas (LNG) carriers, causing a big reduction in their earnings, The Korea Times reports. To build LNG carriers, most South Korean and foreign shipbuilders currently use a membrane containment system developed by Gaz Transport & Technigaz of France, a key technology for freezing and storing gas in tanks for transport. South Korean shipbuilders' profit margin amounts to about 10 percent of a carrier's order price, of which nearly 5 percent is paid to the French company in royalties, according to the report. The nation's shipbuilders charge an average $200 million for each LNG carrier. The nation's top three shipbuilders - Hyundai Heavy Industries, Daewoo Shipbuilding & Marine Engineering, and Samsung Heavy Industries - currently have an order backlog of about 100 LNG carriers. Given the royalty payment ratio, the three shipbuilders will have to pay the French company about $1 billion in the future, which will cut deeply into their earnings; usually 5 to 10 percent of the order price. Source: The Korea Times

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