In recent years, the order screening strategy implemented by the South Korean shipbuilding industry has achieved some success, HD Korea Shipbuilding & Offshore Engineering (HD KSOE), Hanwha Ocean, Samsung Heavy Industries, and other major shipbuilders have successfully turned a loss into a profit. With the shipbuilding industry going into a super cycle, the Korean shipbuilding industry is concerned that unions may intensify labor conflicts, and unions at major shipbuilders are calling for further pay raises.
Korean industry insiders and outsiders attribute the improved profitability of shipbuilders to the International Maritime Organization’s (IMO) goal of achieving carbon neutrality by 2050 and the European Union’s (EU) increasing environmental initiatives. The shipping industry, which accounts for about 3% of global carbon dioxide emissions, has joined the IMO and the EU’s decarbonization efforts and increased orders for environmentally friendly ships such as ammonia carriers, which has improved the operating profits of shipping companies.
Data show that South Korea’s three major shipbuilding giants – HD KSOE, Samsung Heavy Industries and Hanwha Ocean – all made profits in the first quarter of 2024 for the first time in 13 years, with operating profits of 160.2 billion won (about $116 million), 77.9 billion won (about $57.96 million), respectively, 52.9 billion won (about $38.37 million).
After three years, South Korea’s shipbuilding industry ranked first in the world for the first time in the first quarter of this year in terms of new ship orders, and the cost of new ships has also hit a record high, so shipbuilders are expected to usher in long-term profitability gains.
Clarkson data show that the value of new ship orders for South Korean shipbuilders in the first quarter of this year amounted to $13.6 billion, surpassing the $12.6 billion of Chinese shipbuilders, an increase of 41.4% year-on-year. The new shipbuilding index has now reached 185.29 points, 96% of the September 2008 peak of 191.6 points.
Negotiations between the three major shipbuilders and labor unions will become tougher this year amid the strong performance of the Korean shipbuilding industry. The shipbuilders hope to reach a favorable wage and collective labor agreement with the unions as soon as possible in order to improve productivity.
However, there appears to be a big difference between the union’s demands and the company’s expectations, and the union’s agreement includes demands for higher base pay, the elimination of the peaking wage system, and changing the criteria for calculating performance pay.
In April this year, the labor unions of HD KSOE’s three shipbuilding subsidiaries – HD Hyundai Heavy Industries, HD Hyundai Mipo, and HD Hyundai Samho – had put forward a joint demand that included raising the basic wage by KRW 159,800, which excludes a fixed raise of KRW 35,000; extending of the retirement age linked to the receipt of the national pension; the elimination of the wage peak system as well as the recruitment of new full-time domestic workers and the improvement of the treatment of subcontracted workers. Union demands are rising as the shipbuilding industry starts to turn a profit after a long decline.
Due to the disagreement from the beginning, no negotiation meeting was held between the labor union and the three shipbuilding companies. Industry sources revealed that HD Hyundai Heavy Industries was scheduled to hold a meeting on May 28 to negotiate the labor agreement this year, but the meeting was postponed due to the conflict between the two sides on the issue of “compensatory leave system”.
The “compensatory leave system” is a system that allows companies to pay former unionized workers for the time they spend on union activities such as labor negotiations and handling internal worker complaints as working time. HD Hyundai Heavy Industries has ordered 29 former unionized employees to return to their jobs after exceeding the permitted limit of the “compensatory leave system,” but the union has refused and warned that it will fight hard in this year’s collective bargaining.
In addition, both sides are expected to face difficulties in negotiations to extend the retirement age. Labor unions have proposed raising the retirement age from the current 60 to a maximum of 65, the age at which can receive a state pension. In 2023, there were also calls to raise the retirement age in the Korean shipbuilding industry, but this is the first time that a specific age is on the agenda.
Not only HD KSOE has serious labor conflicts, but Hanwha Ocean has also been embroiled in labor disputes. At the time of its acquisition by Hanwha Group in May 2023, the company agreed to make some kind of payment to its employees, but the two sides disagreed on the terms of the disbursement. Samsung Heavy Industries also plans to hold labor negotiations with a union centered on field workers, which was first established in July 2023, to discuss profit distribution.
Regarding the postponement of the meeting, HD Hyundai Heavy Industries related personnel said, “In order to smoothly conduct the negotiations, it is necessary for the two sides to make an agreement on the operation standards of the negotiation committee within the scope of relevant laws and regulations, and to commit to holding the relevant meeting as soon as possible.”
