Tens of thousands of job losses? A wave of layoffs hits South Korea's shipbuilding industry

In the first half of this year, the COVID-19 pandemic raged globally, causing a sharp drop in international oil prices and a growing trend toward prolonged low oil prices. This resulted in a virtual standstill in the global marine engineering equipment bidding market. The depletion of orders for marine engineering equipment, coupled with dwindling remaining workloads, will lead to a wave of unemployment for tens of thousands of workers in the South Korean shipbuilding industry.

Marine engineering orders are about to reach zero, potentially leading to tens of thousands of job losses.

According to sources in the South Korean shipbuilding industry, in Geoje City, Gyeongsangnam-do, where the large shipyards of Samsung Heavy Industries and Daewoo Shipbuilding & Marine Engineering are located, up to 8,000 employees of subcontracting companies face the threat of unemployment due to insufficient marine engineering workloads.

The shipbuilding industry is the pillar industry of Geoje City. Daewoo Shipbuilding & Marine Engineering and Samsung Heavy Industries, the second and third largest shipbuilding companies in South Korea, are both located here. As a result, Geoje City has become one of the world's shipbuilding centers, known as the "cradle of South Korea's shipbuilding industry," the "number one shipbuilding city in South Korea," and even the "city of steel warriors."

Geoje City Mayor Byeon Gwang-yong confirmed this news on June 30 in an interview with South Korean media outlet Gyeongnam CBS. Mayor Byeon emphasized the crisis caused by insufficient marine engineering workloads, stating: "It is estimated that up to 8,000 employees in Geoje City may lose their jobs, with a minimum of 5,000 to 6,000. This is not only a problem for the unemployed individuals but will also deal a fatal blow to the regional economy. Therefore, it is urgent to develop countermeasures for this problem as soon as possible." The South Korean Shipbuilders' Union's prediction of job losses is even more alarming, potentially reaching over 10,000.

However, Daewoo Shipbuilding & Marine Engineering's marine engineering workload is nearing zero. Currently, the company only has one marine engineering order, a semi-submersible floating production platform (Semi FPS/FPU) signed with Chevron Corporation in December last year. This is the only new marine engineering order Daewoo Shipbuilding & Marine Engineering has received in five years. Previously, Daewoo Shipbuilding & Marine Engineering had received an order for a drillship from Vantage Drilling for $660 million, but it was canceled in August 2015. In May 2018, Daewoo Shipbuilding & Marine Engineering resold the canceled drillship to Northern Drilling (NODL), owned by Norwegian shipowner John Fredriksen, for $350 million. However, in October last year, NODL canceled the order again.

A Daewoo Shipbuilding & Marine Engineering official said: "The workload in the company's marine engineering department will eventually be depleted. We are taking countermeasures, transferring workers from the marine engineering department to the merchant ship construction department, and retaining only the necessary personnel."

In comparison, Samsung Heavy Industries' situation seems slightly better, but it is still not optimistic. Compared to other South Korean shipbuilding companies, Samsung Heavy Industries has a higher proportion of marine engineering equipment construction. Currently, the company has three marine engineering orders, including a floating production, storage, and offloading vessel (FPSO) signed with India's Reliance in April last year, as well as an FPU and a floating liquefied natural gas production and storage unit (FLNG). In September last year, Transocean, one of the world's largest owners of floating drilling rigs, canceled an order for two ultra-deepwater drillships signed in 2014 with Samsung Heavy Industries by its subsidiary Ocean Rig, which it acquired in 2018. Furthermore, Samsung Heavy Industries faces the risk of incurring additional costs for its inventory of drillships. The contract value of the five unshipped drillships is $2.99 billion, while the book value at the end of last year was only $1.59 billion, a reduction of nearly half.

A Samsung Heavy Industries official said: "We still have two marine engineering equipment deliveries scheduled for 2022, but due to the lack of follow-up orders, the workload will bottom out in two years. We are considering focusing more on securing orders."

According to the South Korean Daily Labor News, the South Korean Shipbuilders' Union revealed that after the completion of current marine engineering projects at Daewoo Shipbuilding & Marine Engineering and Samsung Heavy Industries, both shipbuilders will conduct large-scale restructuring of their subcontracted workers, affecting approximately 11,000 employees.

The South Korean Shipbuilders' Union is composed of six union organizations under the Korean Metal Workers' Union (Hyundai Heavy Industries branch, Daewoo Shipbuilding & Marine Engineering branch, Hyundai Mipo Dockyard branch, Sungdong Shipbuilding branch, STX Shipbuilding branch, and Hanjin Heavy Industries branch), as well as the Hyundai Mipo Dockyard Union and the Samsung Heavy Industries Labor Agreement Council.