Despite Losses, Korean Yards Pay Employee Bonus

To mark the Lunar New Year, Hyundai Heavy Industries, Daewoo Shipbuilding and Samsung Heavy Industries are reportedly preparing to issue bonuses of one month's full salary to their employees in an effort to lift morale.

The bonuses will coincide with the five-day break accompanying the Lunar New Year, which will occur February 8.

2015 was hard on the South Korean shipbuilding industry; a contraction in shipping and offshore activity led to a sharp reduction in orders – and large layoffs as firms like STX struggled to restructure.

The top three yards have cut back their orderbook targets for new sales for 2016, totaling at about $40 billion for 2016 instead of last year's $50 billion. Together they posted a combined loss in the range of $6.6 billion last year, about four times their combined loss in 2014.

"It is the first time ever that the shipbuilding industry has chalked up such a dismal result," one industry insider told Yonhap news agency. "The situation in 2015 was worse than during the country's foreign exchange crisis in the late 1990s."

Analysts forecast further declines for Korean yards as most sectors of the shipping industry contract. Korea's Exim Bank released a forecast in late December predicting a drop in new orders of 25 percent year over year in 2016.

“Due to a severe slump in the offshore facility segment, the shipbuilding industry will continue to trend lower down the road,” the bank's research arm said in December. “Demand for LNG carriers, one of South Korean shipbuilders’ cash cows, is also likely to contract for the time being.”

The country's financial regulators have pushed shipbuilders to pursue profitability over market share and to put an end to aggressive bidding practices to attract foreign clients. But higher prices for newbuilds at Korean yards could provide a further opening for lower-cost Chinese competitors, like Shanghai Waigaoqiao, which overtook Hyundai Mipo for fifth place by tonnage last year.

In the latest move in the ongoing contraction, Hyundai Heavy Industries announced Thursday that it intends to shutter one of its two offshore rig construction shipyards. A Hyundai spokesman told media that the move was due to the sharp downturn in orders, and did not give a date for the facility's reopening.