DSME declares state of emergency amid Russia crisis, labor dispute
Daewoo Shipbuilding & Marine Engineering's (DSME) Okpo shipyard on Geoje Island in South Gyeongsang Province / Courtesy of DSME
By Park Jae-hyuk
Daewoo Shipbuilding & Marine Engineering (DSME) declared a state of emergency in a statement issued by CEO Park Du-seon, Wednesday, to overcome the worsening business environment caused by Russia's invasion of Ukraine and unionized subcontracted workers who have occupied its dock for a month.
“The recent recovery in orders was expected to solve the long-lasting shortage in production and normalize the management, but these have been uncertain, as the illegal strike by unionized subcontracted workers has continued,” Park said. “Including myself, all executives will enter a 24/7 emergency mode to resolve the current crisis as soon as possible and take the lead in making a sustainable company.”
Daewoo Shipbuilding & Marine Engineering (DSME) CEO Park Du-seon / Courtesy of DSME
Prior to the declaration, the shipbuilder convened its executives on June 21 to make the emergency mode decision.
A series of measures were taken as the company faced snowballing losses and a labor shortage.
In the past, DSME had suffered huge losses as it had been poor at offshore platform construction and had failed to cope swiftly with the changing business environment. The Korea Development Bank-led creditors and DSME employees, therefore, helped the company carry out a large-scale restructuring.
The recent boom in the shipbuilding industry temporarily resulted in signs of recovery in its business, but the rapid increase in raw material prices and Russia's war with Ukraine led the company to face a deficit again.
Its debt-to-equity ratio rose to 547 percent as of the end of the first quarter.
In particular, Russia abruptly canceled two out of three contracts with DSME for the construction of liquefied natural gas carriers, refusing to make payments in the wake of the international community's financial sanctions.
As a result, the combined size of DSME's contracts with Russia reportedly declined to around 300 billion won ($230) from 1 trillion won. Furthermore, the remaining contract is also on the verge of cancellation.
DSME said it was preparing strategies for the future to counteract the crisis.
However, the company claimed that its plan has been thwarted as unionized subcontracted workers from the Korea Metalworkers' Union occupied its dock last month demanding a 30-percent increase in wages. The workers, having faced 10 years of wage cuts and freezes and have been demanding to normalize their wages.
“Because the strike has delayed shipbuilding, we had no choice but to reduce production,” a DSME official said.
The shipbuilder is estimated to have suffered over 300 billion won in losses amid the labor dispute, according to industry analysts.