South Korean Yards Restructure, Trim Workforce

The problems Southeast Asian offshore contractors faced appeared relatively miniscule when compared to the situation in South Korea, where large shipyards are under pressure had to downsize their workforce to cope with a dearth of orders.

Mounting losses from shipbuilding, including offshore, operations over the last two years have strained company finances of the country’s 3 major shipyards – Hyundai Heavy Industries Co. (HHI), Daewoo Shipbuilding & Engineering Co. (DSME) and Samsung Heavy Industries Co. (SHI).

The latest quarterly financial results released in late July showed a mixed performance by South Korean yards. While SHI incurred a net loss of $188.7 million (KRW 212.4 billion won) in the June quarter, HHI – the world’s largest shipbuilder – managed to post a net profit $348.5 million (KRW 392.3 billion). DSME, which released its second quarter results Aug. 16, incurred a net loss of $1.1 billion (KRW 1.2 trillion).

Bloomberg reported June 8 that the South Korean government is implementing a plan to help the ailing shipbuilding sector restructure its business. A $9.8 billion (KRW 11 trillion) fund, created by the government and Bank of Korea, will be available from July 2016 to end 2017 to help lenders absorb losses from the sector.

“We will swiftly carry out restructuring of shipping and shipbuilding companies under the principle that the companies strictly implement their own reform plans and take losses incurred,” Finance Minister Yoo Il Ho said, as quoted by Bloomberg.

The South Korean government said the 3 companies have submitted their $7.5 billion (KRW 8.41 trillion) fund-raising plans, including sale of assets and job cuts of around 30 percent, to their creditors, including state-run Korea Development Bank and KEB Hana Bank.

According to the July 7 report in the Financial Times, SHI intends to lay off 1,500 workers this year as part of a plan to trim around 40 percent of its 14,000 strong workforce by the end of 2018, while local rival DSME will reduce 3,000 workers or 20 percent of its 13,000 employees by 2020.

Despite strike actions launched by union members protesting against the restructuring and job cuts, the 3 shipyards have commenced the process of downsizing their workforce.

HHI said July 28 in its financial results that $231 million (KRW 260 billion) was spent for the firm’s voluntary retirement program during the second quarter, while the cost of a similar program as well as other job cuts at SHI amounted to $186.6 billion (KRW 210 billion won).

On its part, DSME intends to implement wage cuts for its administrative and manufacturing workforce by 10-20 percent in the next 5 years as part of restructuring, Korea Joongang Daily said in a June 1 report.

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