HD Hyundai Heavy Industries (HHI) is considering importing blocks for merchant ships from China for the first time since its establishment. Until now, all of the blocks for merchant ships have been manufactured by HD HHI’s Korean partners and delivered to HD HHI.
According to industry sources on Dec. 10, HD HHI has recently been in contact with several Chinese block makers and is considering outsourcing some of its block production to them as the Korean shipbuilder has had a difficulty in securing merchant ship blocks in Korea. For more than 50 years since its foundation in 1972, HD HHI has sourced blocks for merchant ships exclusively from Korean partners.
Ships are made of large and small blocks put together. Large blocks can weigh as much as 400 tons each, and very large container ships are built with 300 large and small blocks. Usually, partners make the blocks and deliver them to shipyards. It is a core process that requires a lot of labor, including cutting steel plates and welding them together. If HD HHI receives blocks through Chinese subcontractors instead of Korean subcontractors, all of the three major Korean shipbuilders –- HD HHI, Hanwha Ocean and Samsung Heavy Industries -- will become dependent on China for block production.
The use of Chinese subcontractors is due to labor shortages in Korean shipyards. The shipbuilding industry has been booming since last year as orders for liquefied natural gas carriers have increased. In response, shipbuilders and their suppliers raised wages and recruited workers in droves. However, recent orders for high-priced vessels will not be paid for until two to three years from now and, since they are short of cash, they are limited in spending money for labor costs. In addition, there is no sign that the labor supply problem will be solved as people generally do not like to work in rural areas. Although the Korean government has recently eased visa requirements for foreign workers, many of them are still years away from becoming skilled laborers.
“It is difficult for Korean shipyards to spend more on labor costs,” said an official of a partner company at a shipyard in Geoje, Korea, “So as the last resort, they are importing blocks from China to stabilize their cost structures.”