Hanwha Ocean is preparing to withdraw a 47 billion won damages lawsuit against the Korea Metal Workers' Union Gyeongnam Tongyeong Goseong Shipbuilding Subcontractors' Association (hereinafter referred to as the Shipbuilding Subcontractors' Association) related to the illegal occupation of the Okpo Shipyard dock (a shipbuilding workplace that allows water to be filled and drained) during Daewoo Shipbuilding & Marine Engineering in 2022. This is a follow-up action after the Shipbuilding Subcontractors' Association and Hanwha Ocean's subcontractors reached a collective bargaining agreement on June 18 to increase bonuses by 50%.
Hanwha Ocean expects that labor-management harmony will help enhance business competitiveness, but the production halt three years ago is still believed to be affecting revenue.
According to the shipbuilding industry on the 30th, Hanwha Ocean is reviewing the withdrawal of the damages lawsuit on the condition that the subcontractor union promises to prevent the recurrence of the occupation protest and issues an apology.
The Shipbuilding Subcontractors' Association occupied one dock of the Okpo Shipyard without permission for 51 days in June 2022, demanding a 30% wage increase. As union members occupied the dry dock, production was halted, causing delays in assembling blocks produced in previous processes and their subsequent floating in water. At that time, Daewoo Shipbuilding & Marine Engineering estimated the damages at approximately 810 billion won, including 27.1 billion won in penalties for delayed ship delivery, 646.8 billion won in revenue losses due to work stoppage and delays, and fixed expenditure of 142.6 billion won.
Daewoo Shipbuilding & Marine Engineering filed a damages lawsuit against five union executives who led the illegal occupation protest in August of that year. Kim Hyung-soo, the head of the Shipbuilding Subcontractors' Association, who protested for 97 days atop a 30-meter tower in front of the Hanwha building in Seoul until the 19th, was one of them.
It is understood that the negative impact of the illegal strike on revenue still lingers. Last year, Hanwha Ocean's revenue was 10.776 trillion won, a 45.5% increase from the previous year, which marked the first annual results since Daewoo Shipbuilding & Marine Engineering was acquired by Hanwha Group. The operating profit was 237.9 billion won, marking a return to profitability for the first time in four years since 2020.
However, Hanwha Ocean's operating profit margin was only 2.2% last year. Hanwha Ocean recorded an order amount of $9 billion (approximately 12 trillion won), nearly three times that of the order amount for 2023. While Hanwha Ocean announced last November that it had achieved the highest order volume among domestic shipyards, the shipbuilding industry evaluates that its profitability was not high. Samsung Heavy Industries recorded the highest operating profit margin (5.1%) among the three major domestic shipbuilders, although its revenue and new order volume were lower than Hanwha Ocean's.
The shipbuilding industry analyzes that the effects of the factory delays during the shipyard strike three years ago continue to persist. It is said that the cumulative delays in the delivery of contracted ships led to a delayed influx of final payments, pushing back profit recognition.
Hanwha Ocean has not yet fully cleared out the low-cost ship orders secured during the Daewoo Shipbuilding & Marine Engineering period. DAOL Investment & Securities estimated that as of the end of the second quarter, 29% of Hanwha Ocean's order backlog consists of low-priced ships with losses or profitability levels between 1% and 4%.
The industry predicts that Hanwha Ocean may improve profitability in the latter half of the year as it is expected to exhaust most of its low-cost orders in the first half. Hanwha Ocean is currently pursuing a strategy focused on high-value-added ships such as liquefied natural gas (LNG) carriers.