Revitalizing the struggling shipbuilding industry

Choi Ji-young

The author is the economic news editor at the JoongAng Ilbo.

From the window of my hotel in September, I could see the glaring lights of the Hyundai Samho Heavy Industries dockyard in Yeongam, South Jeolla. The company, an affiliate of Hyundai Heavy Industries, was busy building LNG carriers late at night. The once-empty factory of one of its contractors in Daebul Industrial Complex — which I visited a year earlier — was full of LNG modules being assembled to be supplied to Hyundai Samho Heavy Industries.

Vigor has returned to the Korean shipbuilding industry. It could take one or two years to recover its past losses, but orders are coming in quickly. Data from Clarkson Research shows that Korean shipbuilders won 44 percent of global orders —13.22 million compensated gross tons (CGTs) for 239 vessels — while Chinese shipbuilders grabbed another 44 percent — 13.27 GCTs with 524 ships — from January through September. In September alone, orders to Korea were two times the orders to China. Ship prices also have been restored to previous peak levels.

Shipbuilding follows extremely volatile business cycles. You must survive a slump with what you earned during a boom. It takes two to three years to deliver a ship after winning an order from a client. Unfortunately, after enjoying a boom in the early 2000s, Korea’s shipbuilding industry did not prepare for the bust that began in 2015.

To restore the industry, the government has poured more than 500 billion won ($350 million) into the industry since 2016 to help the insolvent Daewoo Shipbuilding & Maritime Engineering (DSME) stay afloat. Why so much money pumped into the sector? The paltry share of shipbuilding in Korea’s total exports last year — 3.6 percent — doesn’t explain the mystery. Simply put, shipbuilding is one of the last remaining large-scale local manufacturing businesses that can hire a large number of Korean workers, while factories for batteries, chips, cars and electronic products are moving out of the country fast.

Korea could reach the top in shipbuilding category primarily thanks to its ability to deliver ships on time — and a chain of creative ideas for engineering to make it possible — even when European countries monopolize most patents on maritime engineering and ship designing. Without the dedicated — and impeccably skilled — labor of workers in the field of welding, grinding and painting, Korea could not have emerged as No. 1 in shipbuilding.

Shipbuilding is also one of the few industries where Korea can maintain its technological edge for years to come. After battling China’s low prices in the past, Korea’s shipbuilding industry keeps an overwhelming tech gap with China particularly in the production of environmentally-friendly vessels, which are increasingly seen as the norm today.

However, the reality of Korea’s festering shipbuilding industry was effectively revealed at home and abroad by the violent — and inevitable — occupation of the docks at DSMC by unionized members of subcontractors. In the construction sector, day laborers with skills in welding and painting earn over 25,000 won per hour, but their counterparts in the shipbuilding sector earn only 13,000 won an hour though their job is even harder. In addition, subcontractors receive less pay than contractors — their temporary employers. Who would work for an industry under such dire circumstances? DSMC was not unique in terms of these practices.

As a result, the number of workers in the shipbuilding industry nearly halved to 90,000 from over 200,000 in 2014. Moreover, the share of irregular workers and contractors in the industry rose to a whopping 62.3 percent, the highest among all industries in Korea. The average for the remaining industries is only 17.9 percent.

The Yoon Suk-yeol administration announced an ambitious plan to support the shipbuilding industry. First of all, it allowed shipbuilders to extend the period for overwork to 180 days from the current 90 days a year on a temporary basis. The government is also expected to assign skilled foreign workers to the shipbuilding sector first and set a fixed quota for them too.

Yet the government — and the industry as a whole — have a long way to go. They are critically lacking attractive ideas to lure shipbuilding workers back to the sector. They were pioneers who developed and elevated Korea’s shipbuilding industry to the top. Revitalizing the sector must begin with turning dockyards and related factories into places where workers want to work.

But the government seems to fall way short of drawing young people back to the shipbuilding industry. We wonder if the extension of the period for a 600,000-won monthly allowance for aspirants for shipbuilding jobs to six months from the current two would really help them work in the field.

Worse, the Ministry of Industry, Trade and Energy demanded 20 billion won from the Ministry of Economy and Finance to induce them to the industry, but the finance ministry allotted only 6 billion won to the category.

The strength of our shipbuilding industry largely comes from the unrivaled competitiveness of skilled workers. Unless the government and the industry protects them well, the country will surrender its No. 1 position to China.