Shipbuilders Feared to Shed Jobs

South Korea has remained the world's largest ship maker this year, but concerns are mounting that a number of medium- and small-sized firms may go for huge restructuring next year, shedding jobs. SLS shipbuilding, the nation's eighth-largest maker, filed Sunday for a bankruptcy prevention program. The smaller-sized 21st Century Shipbuilding followed suit one day later.
Both companies suffered a drought in new orders this year, with SLS winning none and 21st Century only two. Before this year, SLS was a strong player in small and middle-sized tankers and won orders for some 70 vessels over the past three years.
The year-long slump in the global industry dealt a severe blow to SLS's cash flow. Currently, its overall loans reach 2.1 trillion won ($1.8 billion), and a recent slush fund scandal at the company lowered its credit rating further.
As for 21st Century, deficits have snowballed owing to a failure in the controversial "knock in knock out (KIKO)" financial derivative.
Things are not any better for other shipbuilders and some makers are stepping up moves to streamline their workforce.
Hanjin Heavy Industry & Construction has recently started a voluntary retirement program. With no exact numbers revealed, the company started to collect submissions last week, and will lay off workers at the end of the year, according to its labor union.
The company could consider transferring some of its shipbuilding workers to more profitable construction departments, but downsizing will be unavoidable if the number of volunteering retirees is smaller than expected. A further standoff might take place as unionized workers are strongly opposed to the plan.
Due to the character of the industry, which requires relatively more costs and more time for production than other sectors, shipbuilders are vulnerable to a global-level slump, according to the industry sources.
"It takes about two years to build a ship, and all the expenses spent on it become debt," a spokesman of a local shipbuilder said. "Having no fresh orders is a big blow to companies."
The rapid growth of Chinese rivals is also a negative factor for the Korean side. Chinese companies took up nearly half of this year's new orders, which seriously shocked the lifelines of non-conglomerate local firms.
The worst problem is that there seems to be no other breakthrough for Korean shipbuilders.
"The hard times are likely to continue until the first half of next year because restructuring seems to be the only way to ease the liquidity crunch," an official of another local maker said on condition of anonymity.