Short 40,000 people?! South Korea's shipbuilding industry is experiencing a surge in orders and an urgent shortage of manpower

Too many orders, but who will build the ships?

South Korea's shipbuilding industry, with overflowing orders, is facing an unprecedented labor shortage crisis. Due to a lack of manpower, South Korean shipbuilders face a greatly increased risk of delayed deliveries and may face huge compensation claims. In the long term, to maintain its position as the world's number one, South Korea's shipbuilding industry will have a labor shortage of over 40,000 people in the next 5 years.

Thousands of Vietnamese welders struggle to enter the country! South Korean shipbuilders may face huge compensation due to delayed deliveries.

According to the South Korean shipbuilding industry, the entry procedures for 1,150 Vietnamese welders originally scheduled to arrive at South Korean shipyards in the fourth quarter have been indefinitely postponed. Due to the local labor export company not obtaining approval from the local Vietnamese government and concealing some foreign workers' educational backgrounds and experiences, this group of personnel is undergoing re-screening.

Welders account for 70% of the entire shipbuilding process, and Vietnamese welders account for 41% of the demand for foreign welders in South Korea's shipbuilding industry. The 1,150 Vietnamese workers whose entry is obstructed is nearly double the total of 600 foreign welders brought in by South Korea's shipbuilding industry last year. To meet the surge in outstanding orders, the demand for foreign welders in South Korea's shipbuilding industry has increased to 2,800 this year.

South Korean shipbuilders, facing a severe labor shortage crisis, appealed to the Vietnamese authorities, stating: "All applicants have the ability to pass skill tests, and we hope they will be allowed to enter as soon as possible." For this reason, more than 420 internal cooperative companies belonging to South Korea's three major shipbuilders have requested the South Korean Ministry of Trade, Industry and Energy, the Ministry of Justice, and Vietnamese authorities to devise countermeasures.

It is understood that the worsening labor shortage is due to the 52-hour work week officially implemented in South Korea last year. As a result of this system, 82.4% of workers in cooperative companies (subcontractors) experienced a decrease in income, with drops as high as 30% to 40%, leading to a significant loss of frontline skilled talent. It is reported that most shipbuilding workers, due to reduced income after the implementation of the 52-hour work week, have switched to Pyeongtaek semiconductor factories and Ulsan chemical plant factories.

Compared to land-based factories such as Samsung Electronics' Pyeongtaek semiconductor factory or battery factories, shipyard operations carry greater risks, and wage levels are relatively lower. In the shipbuilding industry, which is experiencing a labor shortage, the daily wage is 130,000 to 140,000 South Korean Won (approximately 700.35-754.22 Chinese Yuan). The minimum daily wage at semiconductor or battery factories is 180,000 South Korean Won (approximately 969.71 Chinese Yuan), making shipbuilding work significantly lower in comparison.

Insufficient labor has also increased the risk of delayed deliveries for South Korean shipbuilders. South Korean industry sources say that the delivery of LNG carriers and container ships ordered by the UK and Qatar may be delayed. Construction at Samsung Heavy Industries and Daewoo Shipbuilding has been postponed by about 2 months, and shipyards like Hyundai Samho Heavy Industries and Hyundai Mipo Dockyard have also experienced delays of about 1 month. For this, the South Korean shipbuilding industry may collectively need to pay 400 billion-500 billion South Korean Won (approximately 2.155 billion-2.694 billion Chinese Yuan) in compensation for delayed deliveries.

Total foreign workers: 3,880! South Korea's shipbuilding industry increases reliance on foreign labor.

It is understood that South Korea's shipbuilding industry's increasing reliance on foreign workers is due to the difficulty in finding domestic talent willing to work in the shipbuilding sector. According to the Korea Offshore & Shipbuilding Association's forecast, the labor shortage for core production skills positions in shipbuilding, such as welding, painting, and electrical work, is expected to reach 11,099 people by June next year, and expand to 36,000 people by 2027.

As South Korea's largest shipyard, Hyundai Heavy Industries has relaxed visa regulations and will introduce approximately 550 skilled foreign workers, including welders from Thailand and Indonesia. Starting in November, about 350 skilled foreign workers will arrive in South Korea to work as outsourced laborers for Hyundai Heavy Industries, and by early next year, around 200 Indonesian workers will also arrive, along with some workers from China, Uzbekistan, and Vietnam.

Furthermore, Hyundai Heavy Industries will increase the number of foreign subcontracted workers from 800 in the first half of this year to 2,000. As of the end of August, the total number of foreign workers in South Korean shipyards was 3,880.

In August this year, the South Korean government confirmed a "Support Plan to Ease Hiring Difficulties" aimed at expanding the recruitment of foreign labor. It plans to increase the entry of approximately 16,000 foreign workers into South Korea this year, expand the scope of visa issuance, and concentrate foreign labor into manufacturing industries such as shipbuilding and foundational industries.

The South Korean shipbuilding industry welcomed the government's measures but also pointed out that the scale and speed of foreign worker recruitment are far from meeting on-site demand. A representative of an internal cooperative company of Daewoo Shipbuilding stated that in 2020, there were around 3,000 foreign workers at Daewoo Shipbuilding's internal cooperative companies in South Korea, whereas now there are only over 450, merely one-sixth of the previous level, making the South Korean government's measures insufficient.

South Korean industry insiders point out that even if the South Korean government increases the quota for foreign workers, their entry several months later will not be of much help. Due to the economic recession, if there is no longer a need for labor by the time a large number of foreign workers enter, how should they respond? Furthermore, foreign workers are also avoiding manufacturing sites with high labor intensity. Due to the severe shortage of foreign workers, even if shipbuilding companies hire them, they quickly move to other industries.

In addition, some South Korean shipbuilding industry professionals also believe that continued reliance on low-cost foreign labor is detrimental to the development of South Korea's shipbuilding industry.

To remain the world's number one in shipbuilding, does South Korea need another 40,000 people in the next 5 years?

Since last year, new orders for South Korea's shipbuilding industry have continued to soar. According to data from South Korea's Ministry of Trade, Industry and Energy, new ship orders received by South Korean shipbuilders in 2021 reached 17.44 million CGT, amounting to US$43 billion, the highest value in 8 years since 2013's 18.45 million CGT. This represents a 112% increase from 8.23 million CGT in 2020 and an 82% increase from 9.58 million CGT in 2019 before the pandemic outbreak. Entering 2022, the global shipbuilding market continues to operate at a high level.

Clarkson's data shows that from January to October this year, South Korean shipbuilders' order intake reached 14.65 million CGT, with a market share of 42%. As of now, the three major South Korean shipbuilders have received over 100 LNG carrier orders this year, reaching a historical high. Dock resources are fully booked until 2026, and the workload is very saturated.

Despite the continuous influx of orders, South Korea's shipbuilding industry faces a huge labor shortage. Data shows that the current number of employees in South Korea's shipbuilding industry is only around 90,000, less than half of the peak of about 200,000 in 2014. Considering the increase in orders starting from 2020, the current estimated need for manpower is around 120,000, with a shortage of approximately 20,000-30,000 people.