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South Korean shipbuilders embrace foreign labor amid shortage

GEOJE ISLAND, South Korea -- The sea change afoot in this shipbuilding hub southwest of Busan can be felt at Asia DC Mart, a supermarket that boasts both a view of a 100-meter-tall portal crane and a growing array of imported goods.

The manager of the store, which already offers 200 types of seasonings, has been fretting about how to expand its lineup even further to respond to the rapid rise of foreign residents in the area. "I have to add more sweets and dried noodles, which Indonesians like," she said.

Prompting the surge is an effort by the government to open its doors wider to foreign workers -- mainly from Southeast Asia -- amid a severe shortage of shipbuilding workers that has left the big three players in the red even with demand booming.

Around 2,000 foreigners have been brought into shipyards around the country this month alone, according to the Ministry of Trade, Industry and Energy.

The 400-sq.-kilometer island of Geoje is home to shipyards run by Samsung Heavy Industries and Daewoo Shipbuilding & Marine Engineering, the world's third- and fourth-largest shipbuilders, alongside a number of subcontractors with construction know-how. It once boasted the highest gross regional product in South Korea around ten years ago, during the industry's boom.

The island has undergone a transformation ever since the South Korean government relaxed visa requirements for workers and began expediting application reviews last fall. These changes, made at the behest of shipbuilding industry players, have brought an influx of welders, painters and other workers.

The city of Geoje, which covers Geoje Island and nearby islands, has a population of about 230,000. The number of foreign residents seen arriving this year is expected to jump 150% from 2022 to 5,000. Samsung Heavy is employing 80 Indonesian workers this year at its Geoje facility.

Asia DC Mart has seen a marked rise in Southeast Asian customers, while local residents have noticed more non-South-Koreans downtown, especially at cafes near the shipyards and local hospitals. If the rush of shipbuilders to improve dormitories on the islands is any indication, the number of foreign workers looks certain to rise further.

The dire labor shortage that has prompted these efforts stems from a market slump beginning in 2015, which forced shipbuilders to downsize. The number of workers in the industry plummeted from 203,000 at the end of 2014 to 95,000 at the end of 2022, according to the Korea Offshore & Shipbuilding Association.

Compounding the issue is Geoje's distance from Seoul, making it difficult to attract young people. Located some five hours from the capital by express bus, Geoje city currently has an average age of 41.7, a sharp increase from 35.4 a decade earlier.

Foreign workers with sought-after skills are can expect at least 80% of the pay of their local counterparts, while South Korea's generous government services add to the area's appeal. Shipbuilding unions, normally known to take a hard line on foreign labor, have had little choice but to accept the influx to address the shortage.

Orders for ships are currently aplenty due to a sharp rise in demand for liquefied natural gas tankers, caused in part by Russia's invasion of Ukraine. The war has prompted European gas suppliers to pivot away from Russian gas brought in via overland pipelines and opt instead for LNG imported from the Middle East and Southeast Asia.

South Korean shipbuilders command a 90% global share in LNG tankers due to the high level of expertise needed to construct the vessels. But the industry does not have the workforce to meet the sudden jump in demand.

At every shipyard operated by the Big Three players -- Samsung Heavy, Daewoo Shipbuilding and Hyundai Heavy Industries -- the construction schedules are fully packed through the end of 2025. The backlog has reached a point where orders have been diverted to China, whose quest to transform itself into a shipbuilding power has been boosted by the war in Ukraine.

Orders for LNG tankers increased 2.3-fold last year, according to British market intelligence firm Clarksons Research. South Korean shipbuilders captured roughly 70% of that demand while the rest went to China, where the surge in business is furnishing shipbuilders with increased technological expertise.

Financial reports from the Big Three underscore the precarious position of the industry in South Korea. Samsung Heavy, Hyundai Heavy's parent Korea Shipbuilding & Offshore Engineering, and Daewoo Shipbuilding have each struggled to climb out of the red.

Samsung Heavy has turned in an operating loss for eight straight years. Lowball orders dating from a market downturn, along with surging material costs, have exacted a lasting toll on finances.

For more than two decades, Daewoo Shipbuilding was undergoing restructuring led by the government-linked Korea Development Bank. That was brought to a close last December when Hanwha Group signed a deal to purchase the company, marking the conglomerate's expansion into the shipbuilding field.

Despite the big change, the number of shipbuilders will remain the same, meaning the industry will still be ripe for excess competition. The global shipbuilding leader is currently China State Shipbuilding Corp., a state-owned enterprise. With Japanese shipbuilders having largely fallen behind the competition, South Korean firms remain the only players that can compete against the growing scale of Chinese enterprises.

But as South Korea's shipbuilding industry slowly loses its market share, expanding the workforce appears a crucial response if the sector is to avoid the same fate as Japan's.

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