Hyundai Merchant Marine Desperate to Get Back on Track

Hyundai Merchant Marine Desperate to Get Back on Track
23/04/2019 https://www.hellenicshippingnews.com/hyundai-merchant-marine-desperate-t...

South Korean shipping line Hyundai Merchant Marine Co. (HMM) is desperate to normalize its operations under its new president. The company is pinning hopes on the 12 mega container ships with a 23,000-TEU capacity that it will secure next year. HMM is struggling in the face of higher oil prices, lower cargo rates and global large shipping firms’ control of the market.

HMM recorded an operating loss for the past eight years. Its operating loss was cut from 833.40 billion won (US$732.34 million) in 2016 to 406.80 billion won (US$357.47 million) in 2017 but grew to 558.70 billion won (US$490.95 million) last year. The amount of its accumulated deficit also snowballed from 1.51 trillion won (US$1.33 billion) in 2016 to 2.72 trillion won (US$2.39 billion) in 2017 and 3.59 trillion won (US$3.15 billion) in 2018.

For this reason, Korea Development Bank (KDB), the largest shareholder of HMM, removed former president Yoo Chang-keun and appointed Bae Jae-hoon as the new president of the company. The bank thinks that moral hazard among its executives and employees has become worse as HMM has become South Korea’s only national flag-carrying oceangoing shipping company after the bankruptcy of Hanjin Shipping Co. Therefore, it has hired Park Jin-ki, a former official of Hanjin Shipping, as the new head of its container ship business, the core business division which accounts for 90 percent of the HMM’s sales. Most of the company’s board members, including outside directors, have also been changed.

However, many in the shipping industry believe that HMM’s problems lie in costs, not employees. Shipping fees have not risen but expenses are growing. This is because the company concluded charter contracts when the shipping industry was booming. The average shipping fee of HMM’s container ships was US$773.86 (880,653 won) per TEU last year. It was US$806 (917,228 won) in 2016. Rising oil prices also weigh down the company. The price of marine fuel increased by 24 percent from US$327.06 (372,194 won) per ton in 2017 to US$430.34 (489,727 won) last year.

Global container carriers, such as Maersk Group, Mediterranean Shipping Co. S.A. (MSC) and COSCO Shipping Lines Co., have achieved economies of scale by operating a large fleet and are putting pressure on smaller firms, including HMM. The combined shipping space of the world’s six largest shipping companies rose from 14,858,300 TEUs in April last year to 16,116,500 TEU recently. Their share of the global shipping space also grew from 67.8 percent to 70.5 percent. The figure of HMM, the ninth largest shipping company in the world, stood at 436,768 TEU, which was only 10 percent of 4.09 million TEU of Maersk, the world’s largest shipping firm. An industry insider said, “There is no reason for shippers to load their goods on Korean vessels as large shipping companies deliver them with lower rates.”

HMM expects that mega container ships, which will be delivered starting from next year, will be a breakthrough. When 12 ships with a capacity of 23,000 TEU are delivered next year, the company’s shipping space will increase to 700,000 TEU. The company will also receive eight ships with a 15,000 TEU capacity in 2021. HMM is planning to enlarge other ships and raise its shipping space to 1.10 million TEU by 2022. Then it will be able to compete with Taiwan’s Evergreen Marine Corp., the seventh largest in the world with a 1,236,686 TEU capacity, and Japan’s Ocean Network Express (ONE) Ltd., the sixth largest with a 1,533,239 TEU capacity.

If all goes as planned, HMM will have more power in negotiations with major companies on forming shipping alliances. Shipping companies form an alliance together, such as the 2M Alliance consisting of Maersk and MSC, the Ocean Alliance consisting of CMA and COSCO and THE Alliance consisting of Hapag-Lloyd and ONE, and use each other’s ships on routes that are hard for a single firm to serve. HMM’s current ties with the 2M Alliance expire in March next year.
Source: BusinessKorea