The Problems For South Korea Shipbuilding Industry

South Korea shipbuilding had recently led the industry but is facing growing challenges and recently slipped back into second place for new orders.

Concept

South Korea shipbuilding had recently led the industry as their Chinese rivals grappled with COVID-19-related restrictions. However, they are facing growing challenges at the moment. Hence, the shipyards recently slipped back into second place for new orders. Now, despite a growing labor shortage, the government refused entry to welders recruited from Vietnam.

Labor Shortage

Experts recently predicted that South Korea’s shipbuilders are facing a growing labor shortage that could reach 10,000 people by mid-2023. As an aid to the industry, the government said it would start new programs to encourage and subsidize vocational training. Thus, encouraging young people to become shipbuilders. Moreover, in the near term would increase the number of foreign work visas offered to skilled workers.

In the meantime, media in Korea and Vietnam are reporting a growing scandal with unlicensed brokers. Particularly, they were recruiting people in Vietnam for the visas. Reportedly about 40% of the welders working in South Korea’s shipyards come from Vietnam. According to the report, the South Korean government has denied entry to 1,150 welders. The Vietnamese government also warned of a testing scam and fraudulent work papers. Under Korean law, foreign workers are required to have 2 years of working experience and pass a proficiency test to receive a visa.

South Korea’s Ministry of Trade, Industry, and Energy announced on Monday that it was working with Vietnam and at the same time is launching a task force to address the growing labor shortage. At the same time, they are also expanding recruiting efforts in Thailand, Sri Lanka, and Indonesia for welders.

The visa issues emerged as Hyundai Heavy Industries detailed its plans to bring in foreign workers to address its immediate labor needs. South Korea’s largest shipbuilder plans to add 550 foreign workers as subcontractors starting this month. This workforce would include 200 from Indonesia with additional experienced shipbuilders coming from China, Uzbekistan, and Vietnam. By the end of 2022, Hyundai will have 2,000 foreign workers employed at its shipyards up from 800 in mid-2022. Overall, the shipbuilding industry as of the end of August reported employing 3,880 foreign laborers.

Competition with China

The continuing labor issues come as the shipbuilders are facing renewed competition from China’s shipbuilding industry. Specifically, after South Korea reported shipbuilding record order rates in the first part of 2022. According to Clarkson Research Service, South Korea’s shipyards took in 42% of the orders in October compared to China’s 53%.

Despite the slip in recent months, South Korea’s largest shipbuilders have each reported reaching their yearly target for new orders.

Hyundai reports total orders valued at $8.8 billion at the end of the first 9 months;
Daewoo Shipbuilding & Marine Engineering (DSME) has achieved 117% of its order target for the year with orders for 38 LNG carriers, 6 container vessels, and 1 offshore plant, with a total value of $10.4 billion;

DSME reported a new record for 2022, an order for an LNG carrier at a record $253 million to be built for Greece’s Maran Gas Maritime.

Price Decline

However, Clarkson reports that orders were down 28% in the first 10 months of the year and that the average price of newbuilds declined for the first time in 22 months. According to the Korean shipyard report, this results from rising costs including the price of steel.

The Korean Export-Import Bank released a report, forecasting further declines in shipbuilding. So far in 2022, South Korea’s industry has booked orders of 14.65 million compensated gross tonnage (CGT). But, economists project that it could fall to 8.5 million next year, or a drop of 42%. In this regard, they estimated 2022 orders would total $38.5 billion while 2023 could fall to $22 billion.

Backlog

Despite the potential for a short-term slowing in the year ahead, South Korea’s industry has an order backlog of 36.75 million CGTs with deliveries scheduled for 2025 and 2026. The economists point to the need to build new ships to meet the pending environmental regulations. Hence, forecast that shipbuilding orders will rebound in 2024.

Source: The Maritime Executive