Korea's 3 Shipbuilders Boost Production Capacity by 50%, Yet Face Challenges
It has been observed that the production capacity of domestic shipbuilding companies has significantly increased this year. This is a result of the shipbuilding industry’s boom, leading to increased hiring and longer working hours. Despite these efforts, however, it appears that the absolute production capacity is still insufficient to handle the overwhelming volume of orders, resulting in an analysis suggesting that there is a shortage in capacity to meet the demand.
According to the semi-annual reports released by three major shipbuilding companies on Aug. 20, which are HD Hyundai Heavy Industries, Hanwha Ocean, and Samsung Heavy Industries, the production operating hours during the first half of this year increased significantly compared to the previous year.
HD Hyundai Heavy Industries recorded 12.89 million man-hours (MH) during the first half of the year, marking a 45 percent growth compared to the same period the previous year. MH is a unit that represents the amount of work that can be done by one person in one hour. For instance, it would be represented as 100 MH if ten workers work for 10 hours. Hanwha Ocean, on the other hand, reported 12.56 million MH during the first half, showing a 56 percent increase compared to the previous year. Samsung Heavy Industries recorded 9.62 million MH during the same period, representing a 1.1 percent rise. It is worth noting that Samsung Heavy Industries has not significantly increased its production capacity compared to the other companies, despite recent expansions in workload.
The key variable in MH, which is the workforce in shipyards, has also increased. In the first half of last year, the workforce in the shipbuilding and offshore business division of HD Hyundai Heavy Industries grew from around 8,200 employees to over 9,500 employees in the first half of this year, marking a 15 percent growth. Hanwha Ocean’s direct and outsourced workforce was 19,400 in January, but as of July it has increased to 21,500, which represents a 10 percent increase.
However, industry insiders in the shipbuilding sector continue to explain that the absolute production capacity is still lacking. In fact, over the past nine years from 2014 to 2022, Hanwha Ocean’s average production hours were approximately 17.4 million MH, which is nearly 40 percent more than the current first half of the year. In 2016, its production capacity even reached 30 million MH.
Despite a backlog of orders, production delays are occurring at various shipyards due to insufficient production capacity. When there are delays in delivering ships due to process disruptions, shipyards must pay penalties. In response, shipbuilding companies are significantly increasing wages and subcontracting fees for their partner companies. For instance, in recent labor negotiations, Hanwha Ocean agreed to raise the basic wage by 111,000 won (US$82.65), including regular promotion increments or a 4.85 percent increase, and also to pay a bonus of 3 million won. HD Hyundai Heavy Industries is conducting labor negotiations with a similar level of agreements in mind. Additionally, Hanwha Ocean’s subcontracting and processing costs during the first half of the year grew by about 60 percent compared to the previous year, reaching 1 trillion won.
Note: Article by Yoon Young-sil (www.businesskorea.co.kr)