Hanjin Shipping Co., Ltd. is back in black amidst a tide of profitability for shipping companies

Hanjin Shipping Co., Ltd. announced its first quarter performance on May 10, showing a fast recovery to black. This is a great achievement when considering last year’s record losses of up to 942.5 billion won. While its operating profit was just 2.5 billion won, it marks a great achievement and is the first operating profit since the 4th quarter of 2008.

A spokesperson from Hanjin Shipping said, “We are expecting far more operating profit in the second quarter thanks to increased trade and the recovery of freight charges in the pacific routes based on the global economic recovery.”

Following STX Pan Ocean, which successfully returned to the black in the fourth quarter of 2009, Korea’s major shipping companies, including the country’s big three - Hanjin Shipping, Hyundai Merchant Marine, and STX Pan Ocean - achieved black letters, too. In particular, various freight charge indexes have reached their peaks this year, while trade volume has returned to figures similar to those before the economic crisis, highlighting the trend of overcoming the crisis. Korea Line Corporation, Korea’s fourth largest shipper, recorded operating losses of 9.4 billion won in the first quarter, significantly lower than last year’s 147.7 billion won.

The Dry Baltic Index (BDI), a leading index, reached 3,608 as of May 7, the highest this year. Compared to its 2947 on April 7, this is a more than 20 percent increase in just a month. As for bulk carriers, all types of ships, from small to extra-large ones, have greatly increased their freight charges.

These increased freight charges appear to have come as a result of the increased transportation of raw materials, such as iron ore and coal. Furthermore, the period coinciding with the increased transportation of grain from South America is another factor behind the increased freight charges. Some analysts claim that these signs of economic recovery have induced speculative funds, also. An industry insider commented, “The recent overflow of transportation volume has increased the freight charges of virtually all types of ships and such a trend is likely to persist for a while.”

Full containers on the seven seas

In addition, the container market situation is rapidly improving, with the increased trade volume leading to greatly increased freight charges.

According to a recent press release by the Ministry of Land, Transport and Maritime Affairs, container trade volume in all of the country’s ports in April was 1,636,000 TEU, which is an increase of 21.5 percent compared to the same period last year. This is a 1.8 percent increase from March, when volume stood at 1,606,000 TEU and is the second highest performance ever following 1,653,000 TEU in March 2008.

The accumulated shipment volume up to April 2010 (6,073,000 TEU) is a significant increase compared to the same period last year (4,926,000 TEU) and 6,047,000 TEU in 2008, which was the last figure before the global financial crisis.

The recovery of freight charges on the Northern American routes, whose recession was bigger than that of Europe, is also significant. This is because the import of containers such as electronic goods and furniture is rapidly increasing as inventories in the Americas are being consumed.

“In all likelihood, we will soon regain the freight charge levels of 2008,” said a spokesperson from the Department of American Sales at Hanjin Shipping Co., Ltd. The company also showed its satisfaction regarding the recent negotiation for basic freight charges between Asia and the Americas. The spokesperson went on to forecast a bright outlook, saying, “Over the next one year, freight charges for North America may return to the level they were before the financial crisis.”

The same applies to Hyundai Merchant Marine Co., Ltd. A spokesperson said, “Large American shippers changed their partners due to high freight charges but now they are returning.”

In addition, as of the end of April, container fares for western and eastern routes between China and the Americas stood at more than 2,000 dollars and 3,000 dollars per FEU (1 FEU is a 40-feet-long container), respectively. This is a large increase from the 1,500 dollars and 2,400 dollars earlier this year.

Negotiations with large shippers regarding freight charges for routes to the Americas, which will be applied from this month, is likely to reach a level far higher than that of last year.

The Transpacific Stabilization Agreement has introduced a guideline, increasing the freight charges between Asia and the western routes of the Americas by 800 dollars per FEU.

Accordingly, the operating profit of domestic shippers is greatly improving. Earlier this year, they aimed to swing back to black letters by the end of the year. However, they are now showing a recovery from the first quarter. Hanjin Shipping recorded a 1.9262 trillion won increase in sales, with an operating profit of 2.5 billion Won in the first quarter in comparison to 1.7857 trillion won and an operating loss of 244.7 billion won over the same period last year. Prior to this, Hyundai Merchant Marine recorded operating profits of 11.6 billion won in the first quarter, and turning to black letters. STX Pan Ocean has also achieved black letters in both operating and net profits.

Smooth winds for foreign shippers

A similar trend has been detected in foreign shippers. Maersk Group of Denmark, the world’s largest shipper, recorded a net profit of 639 million dollars in the first quarter, a clear indication that international and domestic shippers are displaying signs of escaping the recession.

Maersk Group’s container business losses reached 2.09 billion dollars last year. However, an increase in export/import volume helped the company achieve a net income of 168 million dollars in that area alone during the first quarter.

CMA CGM of France, the third largest shipper in the world, swung to the black with an operating profit of 270 million dollars in the first quarter of the year. This was in sharp contrast to last year’s operating losses of 1.4 billion dollars. The company was in a critical situation during the financial crisis, and was forced to request, and receive, an 18-month-long grace period over the principal of loans totaling 5.4 billion dollars from 75 banks.

Advent of aggressive management

With the market situation becoming healthy, global shippers are turning to aggressive management using methods such as increasing the bottoms of ships.

MSC, the world’s second largest shipper can serve as a clear example of this trend. The bottom (or, the total volume to be loaded on a ship) of this company at the end of April was 1,600,000 TEU (1TEU is one 20-feet-long container), which is a 13 percent increase compared to the same period last year. A Chilean company, CSAV, which received emergency help last year after being on the brink of bankruptcy, is expected to increase its bottom by 40 percent. COSCO, China’s most prominent shipper, plans to increase its bottom by 60 percent, from 560,000 TEU as of 2009 to 880,000 TEU by 2013.

“Although the shipping market situation is improving, I never expected to witness such a fast expansion in management of shippers,” said an industry insider. “As global shippers were restructured following the financial crisis and the volume of trade rapidly increased, certain shippers are promoting advance investment.

“The increased demand for raw materials, including iron ores, crude oil and coal thanks to the increased rates of industrial operation in many countries worked positively for the shipping industry, leading to rapid improvement of the market situation. This has created a virtuous cycle, leading to the building of more new ships and increased orders for marine energy development facilities.

“As the recovery of shipbuilding, shipping industry and oil refinery - all of which have traditionally led Korea’s exports - is becoming salient, they are soon likely to reach the levels they were before the financial crisis. As a result, the synergistic effects among these industries are expected to be even greater.”

However, some are still worried about the financial crisis in parts of southern Europe, such as Greece, and claim that this necessitates more attention.

“While various economic indexes are showing good signs, increasing hopes of an economic recovery, the overall global financial market, including southern Europe, is not so healthy yet and we need to be more prudent for the time being. At the moment, more time is needed for the accumulation of data for reliable, consistent market monitoring,” said an analyst from a stock trading firm.

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