Large Layoffs Ahead For South Korean Shipbuilders

HHI LNG tanker

By MarEx 2015-11-03 20:00:06

Shipbuilding executives and government sources indicate that large-scale layoffs are coming for employees of South Korean shipbuilders. As many as 10,000 people could be let go over the course of the next several years. The layoffs will be one component of large-scale restructuring in the sector.

The South Korean government's Financial Supervisory Service and Financial Services Commission has classified a substantial number of smaller industry players – nearly 20 percent, up from six percent in 2009 – as “marginal firms.” Some of the worst hit are small local yards and yards that started out as parts manufacturers, like industry name STX Offshore and Shipbuilding, which recently sold its Dalian yard piecemeal. Even the biggest have struggled to slow the decline: Hyundai Heavy's third quarter numbers indicated that its net loss for the period was more than seven times as much as analysts' expectations.

Many of the yards are heavily dependent on financing to support their operations. Cumulatively, the sector owes approximately $44 billion, and the Financial Supervisory Service has recently indicated that the yards could pose a systemic risk to the South Korean economy if not successfully restructured. And restructuring – especially for some of the smaller “marginal firms” - may mean closure. 

“Companies that cannot float on their own need to be ousted, which can help alleviate market uncertainties,” said Financial Services Commission Chairman Yim Jong-yong. “Restructuring can eventually help the national economy.”

In mid-August 2015, the “Big Three” Korean shipyards, Hyundai Heavy Industries, Samsung Heavy Industries, and Daewoo Shipbuilding reported that they would let go of 2,000 to 3,000 employees by year's end, including a substantial number of managers. Hyundai had already laid off 1,500 workers early in the year. The latest projections indicate that the trend would continue at a similar rate for at least two to three years.

The layoffs and consolidation in South Korea follow similar conditions in the offshore oil industry. Falling oil and gas prices have led to reductions in drilling, and the attendant supporting sectors like offshore supply and engineering services have taken significant losses.