Global Shipping Business at Crossroads
By Kim Seong-jun
The year 2009 is still tough ― but there are some signs of economic recovery. U.S. President Barack Obama is racking his brain to come up with a package of plans to boost the American economy.
Amid JP Morgan's projection of a 2.5-percent GDP contraction for South Korea this year, Samsung Electronics, one of largest local enterprises, delivered a shock as it recorded an unprecedented operating loss of 94 billion won in the fourth quarter of last year.
Not a few companies across the country have already begun or now strive to downsize their production volume for export, mainly caused by a sharp decrease in purchasing orders from foreign buyers.
It is very gloomy to read the news that the country has continued to experience sluggish exports since the outbreak of the global crisis in September 2008. Shipments have decreased by 20-30 percent year-on-year.
The export setbacks have hit many fields of business hard. One of them is the shipping business, which is very sensitive to overall business fluctuations.
In the wake of the global economic downturn, the shipping business now stands at the crossroads of life or death, not knowing how to make a breakthrough in its financial difficulties.
CMA-CGM ― the third-largest global shipping company in France ― reportedly considered declaring a moratorium on its debt repayments last week.
Some South Korean shipping companies have already suffered a financial crunch this year.
On the heels of the global economic recession, the global shipping industry is now breaking a new record in terms of number of vessel lay-ups. The main reason for the lay-up can be attributed to the tonnage glut in the market with more deliveries of extra-large sized vessels in the shipping market from the second half of 2008.
And, the low box rates for most carriers provide with their own or chartered vessels no longer produce the necessary minimum profit to maintain a specific service route in the business.
According to available statistics, some 548 ships totaling 1.3 million TEUs are currently believed idle or laid up at sea. (TEU refers to twenty-foot equivalent unit.)
The figures are the highest in container shipping history, even higher than 5 percent reached in 1986 when the fleet of U.S. Lines was not operating in the wake of the carrier's bankruptcy. They represent 10 percent of the existing fleet in TEU terms.
True, the world shipping business is at the deepest of the winter seasonal lows. If this dismal situation surrounding the problem of idle ships continues, the majority of shipping companies in the world are facing a serious a crisis and must take drastic countermeasure for survival ― withdrawal of some major services, mass layoffs, or mergers and acquisitions among large and small-sized shipping companies.
South Korea has more than 30 domestic shipping companies in various fields of sea transportation at present.
As one of basic industries in this country, shipping companies have contributed to national development in both exports and imports over the past decades.
But they are now in difficulties due to the global economic crisis like other shipping firms across the world.
The chances of survival for a shipping company could become slimmer if the number in the idle fleet grows. It is urgent for shipping companies to take bolder steps to tackle the global hardship.
The writer has been engaged in shipping business for 15 years and now works as an assistant general manager at the business strategy division of Korea Marine Transport Co. (KMTC Line) in Seoul. He can be reached at sjkhim@kmtc.co.kr.