SMEs seek flexibility in foreign labour policy for O&M sector

The need to ride on yards for higher FW ratio ties SMEs' hands


THE large number of ships transiting through Singapore creates demand for ship repair, conversion and upgrading services here, offering industry players some buffer against cyclical shipbuilding activity. Yet, some small and medium enterprises (SMEs) are finding it hard to tap these opportunities because of how the foreign worker (FW) policy for the marine sector is structured.

Policymakers, mindful that the nature of offshore & marine work does not appeal to locals, have over the years assigned a higher FW dependency ratio ceiling of 77.8 per cent for what is classified as the Marine Shipyard sector. This works out to up to 3.5 FWs allowed for every local on hire.

The Marine Shipyard sub-sector has enjoyed such FW concessions since the 1980s. The authorities have said the aim was initially to establish Singapore as a global leader in rigs and platforms.

But only owner-operators of waterfront facilities can self-sponsor for FW quotas assigned to the Marine Shipyard sub-sector while all others have to rely on yard sponsorships to do so.

However, SME owners are finding yard sponsorships harder to secure these days amid the industry's downturn.

Victor Lee, general manager of Rex Marine & Engineering (Rex M&E), said shipyard operators traditionally have been more inclined to sponsor their contractors down the value chain if the shipyards themselves have newbuilding projects. However, such projects have dwindled to a trickle during this industry slowdown.

SMEs like Rex M&E have, however, managed to secure work directly from end clients, rather than through shipyards. According to Mr Lee, vessel owners now contribute 90 per cent of Rex M&E's business for the past two years, compared to 50 per cent previously.

The company, which provides heating, ventilation, air conditioning and refrigeration solutions, is often called upon for ship repairs and maintenance work that may no longer take place within shipyards. Industry players say this is because many vessel owners are seeking to get their vessels serviced offshore, instead of bringing them into Singapore yards, seemingly to cut costs and shorten turnaround time.

So SMEs like Rex M&E tend to directly bid for work with vessel owners and end clients, instead of taking subcontract work from the yards. They are able to qualify for tenders mainly on their track records.

Thermal Limitec, a family-run business specialising in fire protection systems, has worked on projects contracted by energy majors such as Shell, BP and ExxonMobil.

The fact that these SMEs are now able to win direct work on their own merits thus casts doubts on whether the current approach of allocating FWs through yard sponsorships is still appropriate.

When contacted, the Ministry of Manpower, in a joint statement with Economic Development Board and Enterprise Singapore, said: "In designing the foreign workforce policy, the Government must strike a balance between meeting firms' manpower needs and an ever-expanding foreign workforce."

Thermal Limitec's chief operating officer Richard Thomas pointed out that even with the firm getting 70-80 per cent of its work directly from owners and end-users these days, it has to "put some contracts through the local yards" so as to be considered for FW support and retain its skilled workforce.

And even if they can find yard sponsors, these SMEs may not secure the FW quotas and the duration of work permits they require because they need to meet the hurdle criteria for FW allocation.

In some cases, they were asked to justify the FW allocation sought on invoice-by-invoice basis. But given each project now runs for shorter duration and comes with lower invoice value, this prompts another question - should the authorities go by combined values and project durations of more than one invoice for each application?

What is at risk for these SMEs is they may end up delaying projects or even losing precious jobs during these hard times. Said one SME owner: "We were recently late in performing the contracted ship repair work because we did not have enough manpower on hand."

MOM also extends high FW dependency ratio ceiling for the process, construction and maintenance (PCM) sector, translating to seven FWs for every local hire. But this does not completely resolve the manpower challenge at hand.

The present rules do not allow cross-deployment of FWs across sectors, so FWs allocated under PCM quota cannot work on marine projects.

Mr Thomas said Thermal Limitec, which is also active in the PCM sector, had managed to retain some FWs under its PCM account through the help of the Ministry of Manpower.

Still, that also means these FWs can no longer be deployed in what is classified as Marine Shipyard work. The current rules basically result in the firm employing two to three times the number of FWs when it is providing the same product - fire protection system - to two or more sectors, Mr Thomas lamented.

Any duplication in FW hires would inevitably drive up costs for Thermal Limitec and its other peers, including Rex M&E and small-cap heat exchanger manufacturer, Heatec Jietong.

The issue at hand is even more complicated for SMEs that qualify for FW quotas under a so-called resident contractor scheme, which effectively binds FW hires to sponsoring yards.

Heatec belongs to this category of SMEs. It is able to self-sponsor as a yard owner for FW quotas but it is also a resident contractor sponsored by two large yard groups here. General manager Jenson Soon pointed out that, against the backdrop of the ongoing O&M downturn, Heatec as a resident contractor, has been footing wages for more non-productive hours because work at the yards has been more intermittent these days and yet, the rules do not allow FWs to be deployed elsewhere.

While Singapore is pushing to automate its industries and reduce FW dependency, these SME owners call for consideration to be granted to the value of FW skillsets and the fact that not all processes can be fully automated or mechanised.

For example, Mr Thomas pointed out that the moulds for Thermal Limitec's products require "a fair amount of manual work" because these are not "mass-produced" and have to be mostly customised. The firm has invested years of on-the-job training to get its FWs up to speed with their knowledge of fire protection systems. But it faces difficulty retaining these FWs because they do not hold the required paper qualifications.

The financial health of these SMEs can have ripple effects on the broader sector. Pacific Radiance's chief operating officer B H Lau said there are far fewer contractors the firm can mobilise for ship repair work nowadays at its yard because many are no longer in business.

As one business owner suggested, ultimately, policy-makers have to be mindful of what has backed Singapore's standing as an O&M hub.

Mencast CEO Glenndle Sim said: "Singapore is the only country where FWs and locals can work amicably together. Clients are willing to pay a premium for this eco-system that works."

Both Sembcorp Marine and Keppel Corp declined to comment for this report.