South Korean shipyards, led by Hyundai Heavy Industries Co., are still struggling to cut costs through unpaid leave for their workers and shutting down dry docks idled amid a lack of orders, industry sources said Sunday.
For decades, the shipbuilding sector has been one of the key growth drivers for Asia’s fourth-largest economy. South Korea is home to Hyundai Heavy and two other top ranked shipyards — Samsung Heavy Industries Co. and Daewoo Shipbuilding & Marine Engineering Co.
But they suffered a steep fall in new orders and faced cancellations for the past few years due to low oil prices and a downturn in the global economy, forcing them to cut costs through workforce reductions and asset sales.
According to business insiders, Hyundai Heavy has recently told its labor union that unpaid leave and training programs for idled workers are necessary to tide over a slump in orders.
The shipyard estimates some 5,000, out of its 17,000-strong workforce, need to take unpaid leave in stages and go on training programs.
Samsung Heavy, another shipyard, is also in talks with its workers to cut costs. The measures include one-month unpaid leave, a return of part of their salaries and an early retirement scheme.
Samsung also closed down two docks, including one floating dock, in the face of a decline in new orders.
Another troubled shipyard, Daewoo Shipbuilding, is also tinkering with a move to sell an additional dry dock. Last year, it sold two of them.
Entering this year, local shipyards bagged more new orders than expected. Hyundai Heavy and its affiliates have secured a series of new contracts, with their new orders reaching $4.2 billion to build 72 ships in the first six months of the year.
Their first-half orders represent a whopping increase from a meager $1 billion and 13 vessels a year earlier.
But the rise in new orders does not immediately mean the start of shipbuilding works. Rather, a decline in order backlog is of serious concern as they fulfill deliveries.
The three shipyards already eliminated a combined 8,300 jobs to cope with snowballing losses in the first half.
South Korean shipbuilders have been under severe financial strain since the 2008 global economic crisis, which sent new orders tumbling amid a glut of vessels and tougher competition from Chinese rivals.
The country’s top three shipyards suffered a combined operating loss of 8.5 trillion won in 2015. The loss was due largely to increased costs stemming from a delay in the construction of offshore facilities and an industrywide slump, with Daewoo Shipbuilding alone posting a 5.5 trillion-won loss.
In 2016, Hyundai Heavy managed to post profits, but the other two suffered losses.
The top three players conducted massive self-rescue plans to stay afloat, which included slashing 20,000 positions, amid the worst slump in their histories.