Labor disputes at South Korea's shipyards are intensifying as the union at HD Hyundai Heavy Industries (329180) began a crane sit-in, following an aerial protest by unions representing both direct and subcontracted workers at Hanwha Ocean (042660). Industry officials warn that prolonged disruptions to operations could sharply weaken Korean shipbuilders' bargaining power in global order talks at a time when China is stepping up low-price bidding and capacity expansion.
Kim Dong-ha, head of the Hyundai Heavy Industries branch of the Korean Metal Workers' Union, climbed a 25-meter crane at a subassembly storage yard in the No. 1 assembly plant of HD Hyundai Heavy Industries' Ulsan headquarters at about 5 p.m. on the 18th, according to industry sources on the 19th. The union escalated its action after management offered no new proposal following the rejection of a tentative agreement reached on Sept. 30, which centered on a monthly base pay increase of 120,000 won and a lump-sum payment of 11 million won plus 200% of monthly wages. The deal was voted down with 52.14% opposed.
The union had initially planned four-hour walkouts on the 19th and 20th led by officials including members of its dispute committee and expert panel, followed by seven-hour partial strikes by all members from the 21st to the 23rd. With talks deadlocked, it instead stepped up pressure on management by having all members stage seven-hour partial strikes for five days from the 19th through the 23rd. The union argues that HD Hyundai Heavy Industries' estimated operating profit for this year exceeds 4 trillion won and is demanding a commensurate share of the gains.
Demands to align working conditions after the integration of HD Hyundai Mipo are also widening the gap in negotiations. HD Hyundai Heavy Industries absorbed HD Hyundai Mipo last December to launch a combined entity. This year's talks mark the first attempt since the merger to merge the two companies' collective agreements and their pay and benefits systems. Union members who came from HD Hyundai Mipo say the tentative agreement is a step back from their previous terms and are calling for the better conditions to be applied to both sides. Kim Tae-am, chairman of the Mipo committee, has been on an open-ended hunger strike since the 8th.
Responding to the union's hard-line stance, HD Hyundai Heavy Industries said it "has negotiated in good faith to bring the talks to a smooth conclusion," adding that it "will do its utmost to resolve the current situation quickly and normalize negotiations."
The situation is much the same at Hanwha Ocean. The Geoje-Tongyeong-Goseong shipbuilding subcontractors' branch of the Korean Metal Workers' Union has been staging an aerial protest for a 19th day at a Geoje plant in South Gyeongsang Province since Sept. 30, demanding collective bargaining with the prime contractor. After wage and collective agreement talks at the prime contractor also failed to produce a deal, Kim Yu-cheol, head of the Hanwha Ocean branch, joined the protest on a crane. The unions representing direct and subcontracted workers at Hanwha Ocean plan to continue the protest until a settlement is reached.
The conflict over how to reward performance appears to be deepening as Korean shipbuilders post a run of strong earnings. Combined third-quarter operating profit at HD Hyundai Heavy Industries, Hanwha Ocean and Samsung Heavy Industries (010140) is projected at 1.8529 trillion won, up 70.7% from a year earlier, according to financial data provider FnGuide.
The unions say that because they shared the pain during the earlier order drought, they deserve rewards matching record results. Management counters that excessive increases in fixed costs could undermine sustainability, given global economic uncertainty and the need to secure funds for future investment in eco-friendly and smart technologies.
As the standoff drags on, unease in the market is also growing. Analysts point to the risk that Korean shipbuilders' bargaining power could weaken as China expands its shipbuilding capacity, with the added possibility of delivery delays. Korean shipbuilders won orders totaling 2.64 million compensated gross tons in the third quarter, down 39.7% from 4.37 million CGT in the previous quarter, according to Clarksons Research, the British shipping and shipbuilding market analysis firm. The Clarksons newbuilding price index, which tracks changes in global newbuilding prices, stood at 186.6 points in September, moving sideways since January's 184.29 points.
Brokerages have also been lowering their expectations for Korean shipbuilders. Kiwoom Securities estimated third-quarter operating profit at 918.5 billion won for HD Hyundai Heavy Industries and 505.3 billion won for Hanwha Ocean, 6.9% and 6.6% below market consensus, respectively. LS Securities cut its target price for HD Hyundai Heavy Industries to 600,000 won from 800,000 won.