DSME Plans to Seek $37M in Compensation from Strikers’ Union

Financially troubled South Korean shipbuilder Daewoo Shipbuilding & Marine Engineering has reportedly decided to sue the union that staged a crippling 51-day strike. Reports in the Korean media indicate that the company is planning on seeking damages from the union through the suit which is also meant as a signal to the unions that Korea’s industrial companies will not tolerate these types of strikes especially while they are already experiencing financial pressures and a need to delivery on extensive order backlogs.

DSME is reportingly planning to file a suit against the union that represents the contract workers at the company’s shipyard and which organized the walkout that started in June. The company is saying it suffered approximately $600 million in damages while production was stopped delaying work on several large tankers due for delivery. The media is reporting the company will ask the courts for approximately $37 million in compensation from the union.

Approximately 100 contract workers had gone on strike demanding up to a 30 percent wage increase. As part of the strike, a union leader locked himself in a cage on the deck aboard one of the VLCCs currently under construction. Other members occupied ships at the yard causing all work to be suspended. The report said the company has not decided if it would also sue the individuals that occupied the ships.

Business Korea cites industry analysts that said it was unlikely that the legal action would be successful. Instead, they believe it is a sign “that an illegal occupation of a dock at the shipyard will not be tolerated.” 

The shipyard canceled its traditional summer holiday when the workers’ ended the strike settling for a 4.5 percent wage increase. The union had asked for but did not get an agreement that the company would not seek compensation as part of the agreement to end the strike. 

Despite a record pace of orders and strong backlog, the shipbuilding industry has also been confronted with rising costs for key materials, such as steel, and a labor shortage which led to financial losses while also delivering the new ships. DSME’s losses were exacerbated by the strike and the company’s already high levels of financial debt. In addition, reports indicated that the company was facing an additional loss on materials pre-ordered for a new project for the Indonesian Navy. The contract has been delayed leading to fears that the company might have to write off all the materials ordered in anticipation of the contract. The potential loss was estimated at an additional $68 million due to the delays on the contract.

As the company’s financial pressures have mounted, there has been speculation in South Korea that the government-controlled Korea Development Bank which is the shipyard’s largest investor, has decided that the company must be privatized. After the proposed merger with Hyundai Heavy Industries was withdrawn due to EU opposition, it has been speculated that KDB plans to break the company into two parts focused on commercial contracts and work for the Korean and other navies. The Korea Times reports that speculation is growing that Korean conglomerate Hanwha Group is a likely buyer for the naval business.

Last year, KDB was successful in completing the sale of smaller shipyards to private investors. Bank officials have been quoted as saying the shipyard should be owned by private investors questioning the use of public funds to maintain the operation. The government, however, has also committed to significant efforts to help strengthen the shipbuilding sector and address issues such as the chronic labor shortage.