Reducing Strike Risks, Increasing Workload... Hyundai Heavy Industries Begins Second Half Restructuring

Preparing for IPO within the Year and 50th Anniversary Next Year
Order Backlog Exceeds Two Years, Enhancing Negotiation Power with Shipowners

Test run of an LNG carrier built by Hyundai Heavy Industries [Image source=Yonhap News]

[Asia Economy Reporter Choi Dae-yeol] Hyundai Heavy Industries, having concluded two years of wage and collective bargaining negotiations, is set to begin a full-scale reorganization in the second half of this year. With major events both inside and outside the company, such as the planned initial public offering (IPO) within the year and the 50th anniversary of its establishment next year, the need to receive a proper evaluation has increased.

According to the company on the 18th, as of the first half of this year, the order backlog stands at $12.29 billion (shipbuilding sector, based on sales), an increase of about $2.9 billion compared to the beginning of the year. Including the contract volumes of affiliates Hyundai Mipo Dockyard and Hyundai Samho Heavy Industries, the total order backlog reached $25.138 billion, an increase of more than $6 billion during the same period. Korea Shipbuilding & Offshore Engineering secured two LNG carriers on the 15th, raising the cumulative orders this year to $15.2 billion, surpassing the target of $14.9 billion.

Hyundai Mipo Dockyard, which has secured nearly 80 orders this year mainly for petrochemical product carriers (PC) and small to medium-sized container ships, has an order backlog exceeding $5.3 billion in the first half, far surpassing its recent two-year sales of 5.78 trillion KRW. Shipbuilders typically gain a favorable position in negotiations with clients when they secure work for about two and a half years.

When orders are insufficient, companies have no choice but to sign contracts at low prices, but once a certain amount of work is accumulated, they have the luxury to selectively accept orders based on profitability. It is reported that during recent negotiations between Maersk, the world's largest shipping company, and Hyundai Mipo Dockyard for methanol-powered vessels, there was a tense exchange over prices and options between the two companies.

The Hyundai Heavy Industries labor union is counting the votes of union members on the third tentative agreement for the 2019 and 2020 wage and collective bargaining negotiations at the Ulsan headquarters gymnasium on the 16th. Previously, the first and second agreement votes were rejected, but this third vote was approved with a 65% approval rate.

Increase in Cargo Volume and Environmental Regulations... Ship Orders Expected to Continue
How Hyundai Heavy Industries Handles This Year's Wage Negotiations and Labor Issues Also Key

Recently, global shipping companies have been placing ship orders one after another because orders postponed due to the impact of COVID-19 last year are now coming out in succession. Additionally, environmental regulations have come into clear view. The European Union (EU) recently included the shipping industry in its mid-to-long-term carbon neutrality plan, Fit for 55. Prior to this, the International Maritime Organization (IMO) had decided to strengthen environmental regulations, prompting shipping companies to gradually equip themselves with vessels that reduce carbon emissions.

Since businesses cannot operate without having a certain scale of eco-friendly ships with low emissions, the demand for ships equipped with desulfurization facilities or powered by eco-friendly fuels is expected to increase for the time being, according to industry insiders. Some also predict that the current shipbuilding market is similar to the early stage of the previous supercycle in 2003, suggesting that market recovery will accelerate soon.

In this context, concerns were raised that if the recent Hyundai Heavy Industries labor union strike prolongs, it could affect the business environment in the second half of the year and beyond. Shipbuilding must proceed sequentially according to a fixed process, and delays can result in penalty payments to clients. Hyundai Heavy Industries had experienced intensified labor-management conflicts during the company split in 2019, leaving wage and collective bargaining negotiations unresolved for over two years. Earlier this year, two tentative agreements reached by labor and management were rejected in union member votes, reflecting growing resentment among frontline employees.

After much difficulty, the third vote was approved, but the critical phase has not been completely overcome. With plans to start this year's wage negotiations immediately after the vacation season, some issues such as reinstatement of dismissed workers remain points of disagreement between labor and management. Since the current union executive term ends this year, the results of the upcoming election to form a new executive team must also be observed.

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