Shipping firms in stalemate

By Kim Seong-jun

“Mr. Kim, what do you think about the destiny of Hanjin Shipping and Hyundai Merchant Marine? Is it possible for them to keep their business in the future?” These were a series of questions that I had to respond to our foreign guests who attended our company’s 20th anniversary of Korea-Singapore and Malaysia container liner service held in the two countries at the end of last April.

Many people in Asian countries seemed to be curious about the further development of Korea’s mega carriers which are in a de facto in insolvent status due to tremendous debts. As flagship shipping liners in Korea for the last two decades, Hanjin and Hyundai have represented our shipping industry with annual sales, handling volume and number of operating fleets.

But, since the global economic recession in 2008, they have been plunged into a serious problem caused by a tonnage glut surpassing global demand, low ocean freight to the sluggish U.S. as well as the European market and most important, high charter fees for long-term charter vessels. This evil cycling forced the ill-fated two Korean carriers to take out a huge amount in loans every year.

The unsavory news for the two Korean carriers has provoked problems in their existing partner carriers in global alliances for joint vessel operations in the U.S. and European service routes. The worldwide carriers are now considering taking the two Korean carriers out of their global alliance. If so, Hanjin and Hyundai will remain only as an Intra-Asia carrier as they will not be able to afford to provide ocean-going services covering Western countries with their own fleets.

The gloomy prospect implies that Korea will no longer have ocean-going carriers with full capacity to transport goods from Korea and the Far East to the U.S. and Europe and this market will be dominated by other foreign competitors such as Maersk, CMA-CGM, MSC, COSCO and so on.

All the more, not a few logistics and port terminal companies in Korea will lose the majority of their handling volume and calling vessels at Busan and Gwangyang as foreign carriers are apt to change the transship port from our local ports to those in China, Taiwan and Singapore in the future as the two Korea carriers are out of membership in joint vessel operations.

In a nutshell, it is undoubtedly plausible that Korea’s logistics and port industries are expected to fall victim to the reshuffling by global carriers.

Now, many experts point out various reasons for the failure of the two companies such as a female owner’s management with poor knowledge of the shipping business, untimely making decisions on enlargement of vessel fleets with four to five times higher than the daily charter to hire; more than that of current the market price.

As a person engaged in the Korean shipping industry, I would like to mention one more critical reason for their cul-de-sac _ a lack of strategic insight into securing pivotal hardware with an assumption that if it went wrong, it would topple their existence. The shipping business is a traditional industry, shrouded in uncertainties and fluctuations beyond its control. That is why a shipping company should be mindful of mulling over restructuring its portfolio such as fleets and service expansion.

Living in the era of unlimited competition on the global stage, a company lacking cost advantages, profitability and more important, insights in business strategy will have to face a pathetic fate not only in the industry but also in every field of business in the time of “Industry 4.0.”

I just keep my fingers crossed for the early normalization of two Korean shipping companies, which will be conducive to keeping Korea’s time-honored glory of the 5th greatest power in global marine transport.

The writer works for Korea Marine Transport Co., Ltd. (KMTC Line) as general manager. Reach him at sjkhim@ekmtc.com.