Transforming the maritime industry

REMI ERIKSEN

Welcome to Trust and transformations - leaders navigating change, a DNV podcast. I'm Remi Eriksen, DNV’s group president and CEO. 

In this series, myself and our business area CEOs sit down with other global leaders to talk about how they tackle transformations, build trust in their business and people, and what they think is coming next for their industry. Right now, they are experiencing a series of historically significant transformations, making trust more important than ever. 

This episode is hosted by Knut Ørbeck-Nilssen, CEO of Maritime at DNV. 

 KNUT ØRBECK-NILSSEN

Hello and welcome to Trust and transformations - leaders navigating change. I'm very pleased to be welcoming Mr. Joon Kim, CEO of HD Korea Shipbuilding and Offshore Engineering to the podcast today. HD Korea Shipbuilding and Offshore Engineering, or HD KSOE as we say, is the shipbuilding and offshore business sector of HD Hyundai Group in South Korea.

With a history of shipbuilding originating in 1972 with two oil tankers and what would later become the world's largest shipyard today, HD KSOE controls the group's shipbuilding companies, providing industrial plant engineering, special and naval shipbuilding, marine engine and machinery, industrial machinery and energy services.

Now, Mr. Kim, very welcome to this podcast and if I could, I would like to start on the first question on the topic of leadership, please. So Mr. Kim, as a short introduction for our listeners, how would you describe yourself as a leader, please?

 SUNG-JOON KIM

First of all, thank you very much, Knut, and thank you for the wonderful introduction of our companies. And thank you for having me for this prestigious opportunity.

And well I think this question is intended as an ice-breaking question, but to be honest for me, it might be the most difficult question that I can answer because I'm not sure about the Western culture, but in Asian culture, especially in Korean culture, it seems a little bit weird to define myself and my character, especially emphasizing positive traits. Sometimes it seems even somewhat implied.

So if you don't mind, I'd like to answer this question in a different way. Okay. So as a leader, I do have a role model who has the leadership that I aspire to have. So why don't I explain his leadership instead of defining myself. And the man I'm mentioning is Mr. Oh-Gap Kwon, the chairman of HD Hyundai Group.

He has worked at HD Hyundai for almost 50 years, which is of course the longest in our group. I have met a number of CEOs and owners since I was in Boston Consulting Group as a management consultant and I should say that Mr. Kwan is the best leader among those who I met. Let me tell you about a couple of observations on his leadership.

First of all, he truly has a very strong ownership. Many of my colleagues, including me, evaluate him as someone who loves the company even more than the real owner. There are many anecdotes that show his ownership, and a good example is that he has not taken his salary for more than three years when this company was struggling.

And another characteristic of his leadership, he always contemplated the future, particularly the long term future of the company. He always says to the top management team, let all the daily operation of the company be carried out by other junior executives. And the CEO, you must always think and prepare for the future for five or 10 years ahead. And the third one, he constantly emphasizes the importance of talent. For any position, he always puts the most competent person. He doesn't care about any other information than the right fit for the position. And once the task is assigned to the person, he fully trusts and supports the person.

Last but not least, he never put off necessary decision-making. He always says one of the key responsibilities of a leader is decision-making. Of course, a leader must be very cautious in decision-making, but they should not postpone unnecessary decision. They must make bold choices when necessary and firmly lead the organization in that direction. And Mr. Kwon always says that leaders who delays decisions are much worse than those who make incorrect decisions. So as I already mentioned, these are the leadership that I'd really like to possess.

So the strong ownership, always thinking and preparing the future, and fair and supportive leadership to the talent, and never delaying the necessary decision-making. These are the leadership that I'd like to have. And I hope this answers your first question.

Now, before we dive into some of the more specifics, so let's focus on transformations in general. Now, the maritime industry faces an array of external influences, including shifts in demand, regulatory mandates and not least economic conditions.

From your perspective, what do you identify as the key driver of change for the industry, please?

 SUNG-JOON KIM

Key drivers of changes. Well, as we mentioned, various drivers have been making changes in the shipbuilding and shipping market. In particular, sometimes we observe significant changes when several drivers overlap simultaneously, like the super-cycle during the first decade of the 21st century. At the time, as you know, three drivers were overlapped, such as the explosive growth of Chinese economy and the demand for vessel replacements concentrated during the oil shocks of the 1970s, and the enforcement of double-hull regulations. And these drivers made unparalleled boom in shipbuilding history.

Similarly, now we have, and we are expecting, another multiple drivers. First one is again the demand for vessel replacement due to a lot of postponement during the last decade. And the second, and I think the biggest one, is as you know, decarbonization. To achieve this decarbonization target, the market requires new vessels that use low carbon or zero carbon fuels. And this need is now causing significant changes in the market.

Particularly, as you know, this demand for decarbonization is getting stronger and stronger and the due time is being accelerated as time goes on, demanding even more rapid and radical changes. That's why all shipbuilders are focusing on the development of various future fuel technologies such as ammonia, methanol and hydrogen.

And the last one is I think digitalization. This is not so critical driver for now, but I believe it will make a huge impact on the market demand once it overlaps with the first and second drivers. Let me tell you why. Unlike in the past, future vessels using clean fuel require much more expensive equipment, and we also need to use very expensive fuels. And consequently, this will significantly increase the operation cost of shipping companies. In addition, this new equipment is quite complex, so it will be difficult to operate, making it more challenging for shipping companies to find proper skilled crew.

I think this increased operational complexity for shipping companies will accordingly promote the digitalization of the shipbuilding industry because they want to lower their operating cost and eliminate the need for human operators through various digital technologies that can make ships more efficient, save fuels, and enable autonomous and unmanned operations.

Well, personally, I think this digitalization currently may not have as much influence as decarbonization, but I strongly believe it could become a very significant driver in the not-too-distant future. So in summary, I think the key drivers of change for industries as of now are the demand of postponed ship replacement, decarbonization, and digitalization. It seems too obvious, but I should say these are the right answers for your question.

Maybe not all our listeners are aware that we produced a global report called Maritime Cyber Priority. Now I would like to ask you a little bit around this. Now, this DNV's global report, Maritime Cyber Priority, found that greater investments in cybersecurity is needed as risks escalate in the era of connectivity. And from your perspective, what are the biggest risks to our industry and who could be most affected by them, please?

 SUNG-JOON KIM

Well, I think the biggest risk can be the occurrence of errors in the computer systems of ships or ports, or the loss of control of ships due to malicious manipulation or hacking. In such a situation, the impact could range from affecting just the ship owners or cargo owners to disrupting a major hub port or canal. And as you know, the magnitude of the impact would be huge.

Let's take a loss of control case as an example. Let's suppose we lose control of a ship, such as propulsion or navigational functions. First, it can cause a direct collision in a harbor or canal and the collision could result in the collapse of the port or canal logistics, which may even cause disruption in global logistics. And in the long term, this kind of collision may affect the global economy with increased transportation costs and rising fuel prices.

You know, the collision in Suez Canal in 2021 is a good example for this, even though it was not a cybersecurity issue after all. And as we know, these kinds of hacking and malicious manipulation have been almost impossible in the past when we use analogue systems. But as we have more and more digital systems, which leads from manual operation to autonomous and unmanned navigation and remote control, these cybersecurity concerns are growing.

And to eliminate these increased concerns, fortunately, various rules and regulations are being developed. For example, the National Institute of Standards and Technology, NIST, in the United States, recommend enhanced security regulations based on the Zero Trust model.

And NIST proposes strengthening security with a motto “never trust, always verify” to eliminate threats that may arise during remote control operations. And we, shipbuilders, are developing highly reliable onboard cybersecurity management systems and frameworks to prevent any kind of cyber-attack or malicious manipulations. Well, I hope this answers your question.

Excellent. Thank you very much. There is so much talk these days around artificial intelligence and I would like to get a bit of views on whether this is for real or whether it's a hype. So, coming back to the topic of digital transformation, HD KSOE has impressively constructed and delivered the world's first ship equipped with an AI engineer that can operate in real time to diagnose the condition of critical ship equipment and also detect emergencies.

What other possibilities and potential do you see AI open up for the maritime industry, please?

SUNG-JOON KIM 

Well, thank you for your question. As we all know, these days, AI is rapidly penetrating all kinds of industries, including shipbuilding sector, and HD Hyundai is also actively developing and applying AI-based technologies for our vessels.

The examples that you just mentioned in your question are the ones named HiCBM and HiCAMs. As you said, HiCBM is a technology that helps ship owners and crews diagnose the condition of major equipment on ships, such as main engines and cargo handling systems. And HiCAMS is an onboard vision-based AI technology that enables very early detection and response to potential risks like fires or gas leaks as early as possible in order to enhance the safety of both crew and vessels.

And besides these two, let me introduce a couple of more AI-based that we have developed or are developing now. The first one, we are currently providing optimized route guidance service incorporating real time weather information using AI and big data technologies. The name is OceanWise and this OceanWise technology has achieved substantial fuel savings in a number of real-world voyage tests. I heard it was up to 15% for fuel savings, so we are expecting it will provide huge benefit for our customers.

And another example that I'd like to mention is very innovative technologies that allow us to optimally operate very sophisticated equipment even by inexperienced and unskilled crew. For example, our AICHS, which means the AI cargo handling system for our LNG carriers, determines which fuel and how much we use in real time. Either the boil off gas from the cargo tanks or fuel from the fuel tanks. It determines the optimal portion between the two fuel sources depending on the vessel operation conditions. And for your information, this technology actually won the Innovation Award at CS 2023.

And in addition to this, we are developing a range of AI-based technologies, and we will continue to develop and provide a variety of advanced AI solutions to our customers. So, stay tuned and see what innovative solutions we bring to you.  

This is very fascinating, Mr. Kim, and we will indeed stay tuned. A little, or a few moments ago, you mentioned decarbonization. So I would like to turn to decarbonization and collaboration perhaps as the next topic. And many will argue that decarbonization is arguably the grand challenge of all the time presenting formidable transformation for industries to embrace.

And Mr. Kim, your company has been leading the eco-friendly shipbuilding industry. What have been the biggest challenges you faced as a company during this global transformation?

SUNG-JOON KIM 

Well, as I mentioned in the previous question, decarbonization is the most critical driver for the shipbuilding industry, and it is changing the market significantly. And to stay ahead of the curve, all the shipbuilders, including us, are putting their best efforts on developing the required technologies. And fortunately, we are leading the industry with our differentiated technologies as of now.

It may seem easy for us to achieve the leading position in this global transition, but actually there have been numerous challenges, and to be honest, not all the challenges have been fully resolved yet. I mean, we are still facing some of the challenges. Anyway, let me tell you about the challenges that we have faced so far.

First of all, one of the biggest challenges was the lack of regulations and clear guidelines. Without clear regulations and guidelines, we had to invest significant amount of time and resources to independently verify both performance and safety. And the second one, another significant challenge is the uncertainty about which future fuel will dominate the future market. Because of this, we cannot focus on just one technology and need to develop multiple technologies in parallel which also requires substantial investment in terms of time and money.

And the last one, which I think is the most difficult challenge that we had was actually convincing the leadership team and stakeholders to make timely decisions for the future and maintaining the momentum and diligently pursuing the direction we decided. Let me explain them in more detail.

Now, no one can accurately predict the future and guarantee the success, right? So leaders should be very cautious to make the right decision. However, once we become confident about the direction after thorough consideration, then we must take a bold decision, I think. Let me give you one good example.

About 10 years ago, when we, HD Hyundai, decided to invest in LNG-fuelled ship technologies, there were a lot of concerns and objections. At the time, people said “who would want to use such a dangerous LNG gas as fuel and use such a high-pressure engine?” However, after various in-depth analysis, we got enough confidence in the technologies, and we made the right decision. And as you know, as a result, HD Hyundai now has the most advanced LNG fuel ship technologies in the world.

And likewise, we had big challenges when we decided to invest in the future fuel technologies such as methanol, ammonia and hydrogen. But again, thankfully, we eventually made a timely decision and took proper actions much earlier than our competitors, resulting in the current leading position. So, in summary, the challenges we had are: no clear rules and regulations and technological and economic uncertainties for each green fuel, and most importantly, internal challenges against making proper and timely decisions. I hope this answers your question.

Thank you, Mr. Kim, and maybe facing these challenges, collaboration becomes really important. So my next question is your recent announcement that HD KSOE will be collaborating with leading South Korean, Australian and Japanese companies to develop safe, flexible and efficient transportation of liquefied hydrogen.

How important is trust and collaboration in the success of projects such as this, please?

SUNG-JOON KIM 

Well, you know, hydrogen is obviously one of the most ideal future energy sources as it is carbon free, safe and universally available. However, there are still many hurdles to overcome before we can use it as a primary energy source of the future. The hurdles include still very high production cost and the lack of economical ways for large scale ocean transport.

Although various players are developing the necessary technologies in order to overcome these hurdles, I think individual efforts are not sufficient for the successful transition to a hydrogen era and opening of the hydrogen market. I believe it is essential to build a comprehensive value chain across the entire industry, including production, transportation, storage, and applications. And to build such a comprehensive value chain, it is crucial to have close collaboration among the players within the value chain based on the strong trust between them.

Let's take an example. If a hydrogen production company like Woodside wants to export liquefied hydrogen via ocean transport, they need to share necessary information for loading and unloading, such as pressure conditions for loading and the required tank size for the one-way shipment with the shipyard and shipping companies and of course the bio sized terminal. Also, the shipyard needs to design the cargo tanks and the vessels according to the shipping company's requirements such as cargo capacity, purity of gas and boil-off gas information.

Since these types of information must be mutually shared to achieve the optimal technical and economical combination, the strong trust and close collaboration between the partners are really essential for the project's success. And in our case, HD KSOE has made this kind of strong and trustful collaboration with partners along the value chain. And for example, in February this year, we launched a collaboration with three global partners: Australian energy company Woodside, Japanese global shipping company MOL and Korean company Hyundai Glovis to develop a liquefied hydrogen transportation value chain. Among here, Woodside is focusing on the production of liquefied hydrogen and identifying large scale customers like Keppel Data Center in Singapore. While we, HD Hyundai, is developing a commercially viable liquefied hydrogen carrier, and meanwhile, Hyundai Glovis and MOL are examining the conditions required for the optimal vessel operations. And another example, in April 2024, we also started a collaboration with Shell as well to develop this time a large-scale liquefied hydrogen carrier with the goal of completing the basic design by 2026.

So as you can see, we are developing many collaboration projects with the key players along the value chain. And we will play an important role in actively building the value chain for the hydrogen society of the future and we will eventually accelerate the opening of the hydrogen market. So in summary, it won't take long for our strong collaboration with trusted value chain partners to open the hydrogen era.

Thank you, Mr. Kim. I've said many times that I believe that collaboration is the fuel of the future. And as your answer sort of indicates, there is some truth in that. Now, my next question is really around HD KSOE's competitiveness and innovation as a leading player in the global shipbuilding industry and how it is propelled by your R&D capabilities, including the new research and development facility dedicated to maritime decarbonization.

Now, what are you hoping to achieve with this facility in the next 10 years, please?

SUNG-JOON KIM 

Well, I fully agree with what you just said. I believe HD Hyundai competitiveness and innovation comes from our R&D capabilities. And I think my transition from CTO to CEO is a kind of proof to this belief. And as you mentioned, in order to strengthen these R&D capabilities, various facilities are needed, particularly the facilities for demonstrating developed technologies are must have items, I think.

Let's take an example. In order to make the market accept the future fuels like ammonia and hydrogen for their ships, we'd need a significantly higher level of technological perfection than ever before. The reason for this is that these future fuels and future cargoes have very high maintenance characteristics, such as extremely low, like hydrogen, and toxicity for ammonia, an icing problem for Co2 gas, and flammability and explosiveness for hydrogen and some types of batteries. So, if a definite technological completion is not achieved, it can result in serious human and economic disasters. And once such a serious accident occurs, the commercialization of that technology could be delayed by at least several years.

Therefore, these future technologies and the corresponding products must be thoroughly validated for their performance and safety, and for this demonstration, facilities are absolutely necessary and essential. So, considering this aspect, we at HD KSOE actually established a new facility named Marine Innovative Decarbonization R&D facility at Ulsan Yard in April 2024 to thoroughly verify the performance and safety of our decarbonization technologies and the corresponding products.

Especially two weeks ago, we held a demonstration event, which is for our Co2 carrier carbon leading system in front of major domestic and international clients. As you know, our customers have big concerns about the icing problems when they handle Co2 gas. And at the event, we showed our technology is perfectly developed and doesn't make any kind of icing problems during the system operations. Of course, our customers expressed great satisfaction on our technologies and the demonstration.

And for your information, we will conduct a series of demonstrations using these facilities in coming years. For example, the Co2 reliquefaction which is planned at the first quarter of 2025 and ammonia CHS scheduled at second half of 2025 and the verification of our own ammonia reliquefaction and products in coming years. And many other demonstrations will follow.

So in summary, our competitiveness comes from R&D capabilities and various facilities, especially demonstration facilities, are playing a very important role for strengthening our R&D capabilities. And we, HD KSOE, will continue to spare no effort in investing in research and development and its required facilities so that we can keep the leading position with the world's best technologies.

I hope this answers your question.

Thank you very much. I have one final question for you today, Mr. Kim. What advice would you give to the CEO of a small business operating in an industry facing such enormous transformations as our industry, please?

SUNG-JOON KIM 

Well, frankly speaking, I think this is another difficult question for me to answer. Well, anyway, here's my thought on this question. As we all know, big changes are both a crisis and an opportunity for companies. Most industry ranking changes occur during these times of change. So they need to find out how to seize the opportunities in times of change.

Of course, one good way is to develop a new technology because, not always but often, industry ranking shifts are driven by whom has a new technology. But you know, it is not easy for SMEs to develop a new technology on their own because it usually requires all the investment, but they don't have enough funds and technical talent. Nonetheless, however, it's also true that it's something that they have to pursue. So for them, it's like between a rock and a hard place problem.

So given these tricky situations, here's my advice for them. Anyway, look for collaboration opportunities with major players in the value chain. Of course, this will be also a hard challenge because from the perspective of large companies, either there's no strong need to collaborate with SMEs or even if there is, they are concerned about nurturing potential competitors in the future.

So in order to overcome these hurdles, I think SMEs need to approach differently. First, identifying targets that are not suitable for larger companies to develop on their own and proposing collaboration under conditions that ease or eliminate concerns about being a potential future competitor. Let me give you an example that we had recently.

Actually, we had helped our company to start a new cryogenic equipment business. The company bought a new item that was a necessary item for us, but not suitable for direct development by ourselves. So we happily guided and supported them to win a national project funded from the government by providing required specification and by providing development and testing methods necessary for ship applications.

So, like this example, I think SMEs can enter a new business and or develop a new technology by partnering with a larger company like us. And by doing this, I think they can capture the opportunity in times of big changes. Well, I hope this answers your last question.

Thank you, Mr. Kim and thank you so much for spending your time and also participating in DNV Trust and transformations - leaders navigating change, and we truly appreciate to have you on the podcast. Thanks a lot.

SUNG-JOON KIM 

Thank you very much for your time and again, congratulations on your 160th year anniversary.

 KNUT ØRBECK-NILSSEN

Thank you so much, Mr. Kim.

 SUNG-JOON KIM Thank you.

 REMI ERIKSEN

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