By Mike Wackett
State-owned Korea Ocean Business Corporation (KOBC) has, reportedly, signed off on some W6.15trn ($5.4 billion) of new funding for the country’s biggest ocean carrier, Hyundai Merchant Marine (HMM) – but much of this cash will be needed to cover continued operations.
KOBC, launched in July this year to support South Korea’s ailing shipping industry, has already supported HMM with a $740 million sale-leaseback transaction on ten of its ships, based on the original value of the vessels rather than their actual market value. HMM recorded a net loss of $1.1 billion last year and is heading for another big deficit after posting a loss of $371 million after six months of this year – the worst-performing carrier in the liner industry’s cumulative $2.4 billion loss.
On 28 September, HMM confirmed it had signed formal contracts for South Korean yards to build twelve 23,000 TEU ships, for delivery in the second quarter of 2020 and eight 15,000 TEU vessels to be delivered a year later. No financial details of the transactions were revealed, but the ULCVs could cost about $150 million a unit to build, with the smaller ships upwards of $100 million each. The contracts have been underwritten by the KOBC.
After the bankruptcy of Hanjin in 2016, South Korea has struggled with its status in world shipping, its new flag-carrier, HMM, forced to play a bit part in a slot chartering role with the 2M Alliance, after being rejected by THE Alliance due to financial concerns.
However, in April HMM launched a weekly standalone Asia-North Europe loop deploying a fleet of panamax vessels. But in July the carrier stopped calling at Southampton due to schedule reliability issues, only to reinstate the port this month after the 2M temporarily suspended a main loop.
Following the change of power in South Korea, sources have told The Loadstar the government “will do whatever it takes” to keep Korean shipping and shipbuilding afloat.
At a sales meeting in December, HMM’s President and CEO, CK Yoo, pledged to “regain customer trust” and explained the rationale behind the big ship orders. He said: “This mega-ship building project is in accordance with the expectation for being a leading shipping nation.” However, European shipowners and builders have spoken out about South Korean state aid and welcomed a recent statement by the EU that pointed to unfair trade practices in Asia.
In a statement on Friday, SEA Europe secretary general Christophe Tytgat said: “The latest support measures from South Korea are clearly an example of unfair competitive distortions. By creating artificial demands through state aid, South Korea has regrettably contributed to today’s severe overcapacity in merchant shipbuilding and merchant shipping, with dramatic, far-reaching consequences for all market players, first for European shipbuilding and now also for European shipowners and the entire maritime value chain. “Europe now needs to be vigilant that the same unfair trade practices with the same potential devastating effects are not repeated in other shipbuilding and shipping segments.”
HMM’s three-year deal with the 2M partners will come to an end in March 2020 just as the new ships are being delivered. It is unlikely that Maersk and MSC will allow HMM to become a full member of 2M and speculation is that the carrier will use its new ULCVs and underwriting from the South Korean government to support a new application for membership of THE Alliance. And, in a strategic ploy to become more competitive, HMM said the newbuilds would have exhaust gas cleaning systems (scrubbers) installed to enable the ships to burn the less-expensive heavy fuel oil after IMO 2020 low-sulphur regulations are introduced.
Reprinted courtesy of The Loadstar (www.theloadstar.co.uk)