Amid Resurrection Hopes... Cold Winds of Layoffs Continue in the Joseon Shipbuilding Industry

"Due to poor orders in 2015-2016, strong performance seems unlikely for the time being"
Expectations for industry recovery lead the three major shipbuilders to raise or maintain their order targets

Since securing the top spot in annual orders in 2011, the shipbuilding industry was pushed to second place by China for six consecutive years from 2012 to 2017. However, from January to November this year, it secured 10.9 million CGT (Compensated Gross Tonnage), accounting for 42% of the global ship orders totaling 26 million CGT, signaling a turnaround in the shipbuilding industry. Next year is more important than ever for the shipbuilding sector, which has found opportunity after crisis. This is because the order performance in the second half of this year and last year presents a chance to escape the shadow of recession. We hope that the boom in shipbuilding in 2019 will serve as a driving force for South Korea's economic growth. Photo by Kang Jin-hyung, showing a worker vigorously performing grinding work at Daewoo Shipbuilding & Marine Engineering Okpo Shipyard in Geoje, Gyeongnam.

[Asia Economy Reporter Yu Je-hoon] The shipbuilding industry continues to face a harsh wave of layoffs. Last year's recovery in the market fell short of expectations, deepening the slump in performance. However, with large liquefied natural gas (LNG) and offshore plant projects scheduled for order placement this year, each company is raising its order targets in hopes of a rebound.

According to the industry on the 8th, Daewoo Shipbuilding & Marine Engineering (DSME) is accepting voluntary retirement applications from December 31 of last year until the 13th of this month. Eligible candidates are office and production workers with less than 10 years until retirement age, born in 1969 or earlier.

DSME's current voluntary retirement program is taking place amid the ongoing corporate merger review with Hyundai Heavy Industries, prompting a sensitive response from labor unions. The DSME labor union stated, "Voluntary retirement is restructuring, and accepting it is equivalent to accepting restructuring," adding, "We declare that the responsibility for everything happening from now on lies with the management and KDB Industrial Bank," signaling a strong stance.

DSME is not the only one facing this wave of layoffs. Samsung Heavy Industries also conducted a voluntary retirement program for all employees in November last year. This marks the third consecutive year since 2016 that Samsung Heavy Industries has implemented voluntary retirement.

The continuous workforce restructuring in the shipbuilding industry is due to deteriorating performance. As of the third quarter of last year, DSME and Samsung Heavy Industries posted losses of 256.3 billion KRW and 312 billion KRW, respectively. This is the result of actively building orders secured at low prices during the downturn, coupled with repeated setbacks such as the cancellation of delivery contracts for the problematic oil drilling rigs (drillships).

A DSME official explained the current voluntary retirement by saying, "Due to poor orders and falling ship prices in 2015-2016, the business environment this year is also expected to be challenging," adding, "Given the increasing uncertainty, this is a proactive response."

The industry expects the market recovery to gain momentum starting this year. Large projects related to LNG carriers, where the three major domestic shipbuilders have strengths, are expected to be consecutively ordered in Qatar, Mozambique, Russia, and other regions. The Korea Eximbank Overseas Economic Research Institute previously predicted that domestic shipbuilding orders this year would increase by about 23% compared to the previous year, reaching 10 million CGT (Compensated Gross Tonnage). Additionally, possibilities such as the expansion of the LNG-powered ship market due to the International Maritime Organization (IMO) environmental regulations and the growth of the offshore plant market due to rising international oil prices are also being discussed.

In line with these prospects, the three major domestic shipbuilders are setting higher order targets this year compared to last year. Hyundai Heavy Industries has set its order target for this year at 15.9 billion USD (approximately 18.5 trillion KRW), about 30% higher than the previous year's order performance (12 billion USD).

This content was produced with the assistance of AI translation services.