Hanwha Ocean and HD Korea Shipbuilding & Offshore Engineering, two major South Korean shipbuilding companies, saw a significant increase in their operating profits in the first half of this year. Hanwha Ocean achieved an 87% increase in operating profit to 1.1772 trillion won, while HD Korea also reached 3.0011 trillion won with a 66% increase.
Internal Challenges and Labor Strikes
However, both companies are facing serious internal challenges. At the Geoje shipyard of Hanwha Ocean, six workers from a subsidiary union have been holding long protests at heights, demanding performance-based bonuses. At the HD Hyundai Heavy Industries shipyard in Ulsan, a temporary agreement on wages and collective bargaining reached after 120 days of negotiations was rejected in a vote on October 2 by union members, and the parties returned to prolonged negotiations.
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Economic Conditions and Profitability Concerns
The external conditions that had led to a positive trend in the shipbuilding industry are deteriorating. The factories are heavily reliant on exports, and the weakening of the won against the dollar has raised concerns about declining profitability. The MASGA project (Korea-U.S. shipbuilding collaboration), which had raised expectations for the industry, has stalled due to the lack of tangible results, including orders for U.S. Navy ships. These challenges have led to a 30 to 40 percent drop in the stock prices of the three major shipbuilding companies.
Negotiations and Labor Conditions
Hanwha Ocean has been negotiating wages and collective agreements with its union since June but has yet to reach a temporary agreement. A strike held last month halted all four of the giant cranes at the factory. Meanwhile, pressure from subcontractors is increasing. The company must negotiate on October 8 with employees of Welliv, the contractor responsible for cafeteria, laundry, and bus services.
Concerns About Second Half Performance
External conditions are worsening. Shipbuilders, who primarily receive payments in dollars, are facing declining revenues and profits. However, the average exchange rate in the third quarter has decreased by 5.6% compared to the previous quarter, allowing analysts to estimate that only Hanwha Ocean and HD Hyundai Heavy Industries may see a combined reduction of 120 billion won in their operating profits for the third quarter.
While the three major shipbuilding companies have secured orders totaling $145.1 billion (about 195 trillion won) for the next 3 to 4 years by the end of August, if these three challenges continue in the second half, these orders may decrease, leading to significant shocks. A senior official from a shipbuilding company said, "When performance is strong, we must prepare for the future, but increasing demands for profit sharing force us to focus only on immediate responses."
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