Seven ships delayed! Shipbuilding giant's order backlog doubles, causing delivery delays

Although the order amount in the first half of this year reached nearly three times that of the whole of last year, Hanwha Ocean suffered from a "chronic disease" of "difficulty in delivering ships" due to labor shortages. In the first half of the year alone, Hanwha Ocean delayed the delivery schedule of 7 ships.

An announcement previously released by HMM, South Korea's largest shipping company, also confirmed this news. HMM stated that the final delivery time of the 6 13000TEU container ships it ordered from Hanwha Ocean in 2021 will be postponed to November 25 this year.

On June 29, 2021, HMM signed a shipbuilding contract with HD Hyundai Heavy Industries and Hanwha Ocean for a total of 12 13000TEU new Panamax-type ultra-large container ships, with a contract value of approximately 177.76 billion won (approximately US$1.575 billion at the time). HD Hyundai Heavy Industries and Hanwha Ocean each received orders for 6 new ships. According to the contract, all 12 new ships are scheduled to be delivered before the end of June 2024.

HMM ordered new Panamax container ships to enhance the competitiveness of the Americas route, where South Korean exporters were struggling due to insufficient capacity. After the completion of the Panama Canal lock expansion project in 2016, the 13000TEU container ship, with a total length of 366 meters, a width of 49 meters, and a draft of 15.2 meters, is the largest container ship that can pass through the Panama Canal, allowing it to carry a large number of containers and smoothly sail to ports on the east coast of the Americas.

However, three years later, the results delivered by the two shipbuilders were vastly different. By the end of June this year, HD Hyundai Heavy Industries had delivered 5 ships according to the contract schedule, and although the remaining ship was slightly delayed, it will also be delivered in July; while Hanwha Ocean only delivered 2 ships on schedule, with the first ship completed on June 19 this year, about 5 months later than the first similar ship built by HD Hyundai Heavy Industries, and the delivery of the remaining 4 ships was delayed, with the latest one delayed until the end of November.

Although the dock operations of different shipbuilders vary, considering that the delivery interval for ships of the same order series is usually about one month, the schedule is somewhat tight.

For HMM, the shipowner, the delayed delivery of this batch of large container ships is regrettable, as the current container shipping market is doing well due to insufficient capacity. A relevant HMM person said: "Now is a good time to make money, the more container ships the company can operate, the better the revenue will be. Although the company has made advance plans for ship operations, in order to further expand capacity, we hope that the ship delivery can be carried out on time."

Since the beginning of this year, the global shipping industry has shown a prosperous scene. Data shows that in the first quarter of last year, the Shanghai Export Container Freight Index (SCFI) averaged 969 points, rising to 2010 points in the first quarter of this year, and increased by 147% year-on-year and 21% month-on-month in the second quarter of this year. HMM stated that with the rise in container shipping freight rates, the company has been looking forward to receiving this batch of container ships earlier, but Hanwha Ocean not only did not advance, but also delayed the delivery time.

For Hanwha Ocean, the delayed delivery of ships has brought a series of problems, including tight berthing at the wharf, increased maintenance costs for new ships, capital occupation, and cash shortages.

As of now, Hanwha Ocean has received orders for 27 ships totaling US$5.33 billion this year, nearly three times the 10 ships and US$1.9 billion in the whole of last year. Although orders are full, due to the company's focus on major issues such as acquisition restructuring and return to profitability since last year, insufficient attention has been paid to production and delivery, resulting in a serious delay in the delivery of new ships.

In this regard, a relevant person from Hanwha Ocean stated that the main reason for the delay in ship delivery is the labor shortage. He said: "As far as I know, Hanwha Ocean is suffering from delivery due to a lack of ship welders. At least at Hanwha Ocean, the labor shortage that has been going on for some time seems to show no signs of being resolved."

This is indeed the case. At the end of 2014, the company's total number of employees was approximately 13,000, which had decreased to 8,300 by the end of last year, a reduction of more than 5,000. Not only has the loss of design personnel intensified, but the number of front-line workers has also decreased significantly.

Kim Se-won, a professor at the Department of Intelligent Mechatronics Engineering at Sejong University in South Korea, said: "The labor shortage in South Korea's shipbuilding industry is not a new issue. Now, with the necessary labor for shipyards, such as welders, flowing in large numbers to semiconductor factories with higher incomes and better working environments, the difficulty in supplying labor for the shipbuilding industry is continuing."

In this regard, a relevant person from Hanwha Ocean said: "In recent years, the speed of labor supplementation by the company has not kept up with the increase in workload, and it is in a very difficult situation. The company is continuously working to supplement foreign workers. We will do our best to ensure that the ships to be delivered at the end of the year can be delivered on time."

However, some in the South Korean industry believe that even if HMM agrees to the request to delay the delivery of the 13000TEU container ships to the end of this year, it will be difficult for Hanwha Ocean to complete it as scheduled. A relevant person said: "Each shipyard has its own different situation, so it is difficult to accurately judge whether it can be delivered before November 25, but from the fact that Hanwha Ocean's main problem is insufficient labor, it may not be easy. Hanwha Ocean should have considered the many variables in the engineering process and arranged the delivery schedule, but I think this was a failure. Because it has been delayed once, in order to avoid paying huge delay compensation, Hanwha Ocean should plan well."

A relevant person from Hanwha Ocean said: "In recent years, the serious labor shortage in the shipbuilding industry has dealt a heavy blow to shipyards and their partner companies, and has also had a negative impact on shipbuilding. Under difficult circumstances, the company is continuously negotiating with shipowners to comply with the delivery deadline at the end of this year to the greatest extent possible."