The Korean government’s labor policy is threatening to undermine the ecosystem of the domestic shipbuilding industry, which is beginning to show a recovery sign after a long slump.
Although the Korean shipbuilding industry recovered the first place in new order receipts last year after ceding it to China seven years ago, equipment suppliers that are at the core of the supply chain for the shipbuilding industry are closing down due to the negative side effects of a steep increase in the minimum wage and a shortened workweek.
Even though major shipbuilders have been closely monitoring the funding and operating situations of their partner companies, they cannot prevent the unexpected bankruptcies of equipment companies. If a ship delivery is delayed due to the failure of partner companies to supply parts in time, the shipbuilder is obliged to pay millions of dollars per day in compensation.
The risks posed by pro-labor policies are undermining the ecosystem of the Korean shipbuilding industry. It is beyond the reach of shipbuilders to ease the increased cost pressure on their subcontractors and equipment manufacturers, who employ more than 60 percent of the total workforce of the shipbuilding industry.
Over the past one year, about 40 percent of shipbuilding material and equipment suppliers in Busan, Ulsan, and South Gyeongsang Province changed their business areas or were put out of business. "We hear that there’s going to be more work because the Korean shipbuilding industry reclaimed the world's No. 1 position in shipbuilding orders. But we neither have the capacity to accept more work due to the 52-hour workweek system nor can expand our workforce due to the hike in the minimum wage," said the president of a marine engine company.