A RISE in headcount primarily in the booming offshore and marine division coupled with higher wages in the red hot sector was the main reason behind an over 30 per cent or $73.1 million rise in Keppel Corp's staff costs for the first quarter ended March 31 - from $233.5 million to $306.6 million.

However, staff costs have been on an uptrend for the group as business, particularly in the labour- intensive offshore and marine industry expands. The corresponding figure in the third quarter was $276.2 million and full-year 2007 costs went up 21.6 per cent year-on- year from $931.3 million to $1.1 billion.

Staff numbers jumped by around 3,000 from 2006 compared with 2007. According to Keppel, this increase in personnel was mainly at its local shipyards with the numbers being attributed to more hirings of blue-collar yard workers.

Wage pressures are rising in Singapore, with labour chief Lim Swee Say, in his May Day message, citing wage increases in the unionised sector not seen since 2000. Keppel's offshore and marine division has a net order book of $11.8 billion and expects to be kept busy with deliveries into 2011. The division is also the group's biggest revenue generator.

However, as the competition for skilled manpower in the sector rises, this is likely to add to wage pressures. With many of the regional yards also getting big new orders and with it the ability to pay more, the wage premium that has attracted Keppel's largely foreign shipyard workforce may need to be raised, further aggravating the situation.

In addition, the group also faces challenges in the foreign markets in which it operates. For example, poaching of experienced staff is common in Nantong, the hotbed of China's burgeoning offshore and marine industry. Keppel has a shipyard there where it builds offshore supply vessels and tugboats.

In Brazil where Keppel operates a massive yard with about 10,000 workers and is building two massive flagship floating production units for Brazilian national oil company Petrobras, operating conditions are not easy. Unionised labour is acknowledged to be very powerful in South America in general and the yard is known to have faced industrial action by the workers as recently as the first half of last year.

Keppel Offshore and Marine chairman and chief executive Choo Chiau Beng elaborated during the first quarter results briefing that the business enjoys 7 per cent to 10 per cent operating margins on average and that this margin rises with the proportion of manpower in relation to material content of a project.

This article was first published in The Business Times on May 2, 2008.