The South Korean government has outlined a series of new steps it plans to take to further support the shipbuilding industry and maintain its competitive position. While the industry has reported strong growth in new orders, it is also facing new price pressures and rising costs as well as a mounting labor shortage.
South Korea’s shipbuilding industry has been locked in tight competition with Chinese shipbuilders for leadership in new orders. Worldwide, ship orders last year were the highest since 2013 at 52.3 million compensated gross tons (CGT) helping the major Korean yards to all report that they exceeded their yearly targets for orders. In the first seven months of this year, Korean shipbuilders booked a further 11 million tons, a 46 percent increase over last year.
For much of 2022, the South Koreans have been maintaining a small lead over their Chinese competitors in large part due to the growth in orders for LNG carriers. The Chinese however have been working to build participation in the gas carrier segment as well as develop new technologies. The South Koreans have also found themselves facing rising costs primarily for steel and now reports of a growing steel shortage both of which have combined to impact the profitability of the shipyards.
Seeking to maintain its advantage in what it sees as high-value shipbuilding, the South Korean government announced a series of new steps to address the pressures on the shipbuilding industry. The government expressed concerns over the “intense belt-tightening moves,” by countries around the world in the face of rising inflation and concerns for a recession. In response, the finance ministry said the government will invest approximately $100 million in 2023 to help the industry develop new technologies. The focus remains on eco-friendly ships and automation technology with the government setting a target for 75 percent market share for these ships by 2030. Also seeking to build on the expertise in gas carriers, the government set a goal of diversifying the orders to win floating storage (FSRU) business.
One of the industry’s key concerns is a growing shortage of workers along with the aging of the workforce. The labor ministry for example reports that the percentage of workers in their 20s and 30s in the shipbuilding industry has fallen in just over five years from half to approximately a third of the workforce. Workers in their 60s doubled in the same period to more than six percent of the workforce.
The shipbuilding industry currently estimates a shortage of 7,500 workers to meet their current orderbooks. By the second quarter of next year, it expects the shortage of workers to exceed 10,000.
The government cites low wages as one of the key factors contributing to the shortage of workers as well as the strong competition from other industries. They further cite concerns over the growing use of subcontractors in the shipbuilding industry, who the government says only earn 50 to 70 percent of the wages of other shipyard workers. The issues of wages and working conditions lead to a prolonged strike starting in June 2022 at Daewoo Shipbuilding & Marine Engineering by the subcontractors that further stressed the financial condition of the company.
The finance ministry announced that it will “improve unfair agreements between contractors and subcontractors and revamp the existing wage system to take duties and skills into consideration.” The government wants to reduce the industry’s use of subcontractors by addressing the current labor shortage.
In response to pressure from the shipbuilding industry, the government said it is taking steps to make it easier to recruit and retain foreign workers and improve the working conditions to attract young Koreans to shipbuilding. The government is increasing the availability of visas and also making it possible for foreign workers to bring their families to Korea. They are also supporting new training programs and increasing the subsidy for vocational training to attract more Koreans to shipbuilding.
The goal is to meet the current order demands while also helping the industry transition to new “smart yard” technology to address the labor shortage and efficiency of the shipbuilders.
