Worrying Backlash
South Korean oil refining companies and transport logistics companies that are in long-term transport contracts with Hyundai Merchant Marine (HMM) are getting the jitters as HMM’s charter rate negotiations are not going well and its court receivership is becoming more and more likely.
HMM failed to reach a collective agreement with shipowners until the South Korean government’s deadline set on May 20. At present, the company is in negotiations with them individually. The court receivership is predicted to come in once HMM and the shipowners fail to agree to charter rate reduction by the end of this month.
As of now, HMM is in long-term transport contracts with S-Oil, Hyundai Glovis, etc. The contract between HMM and S-Oil is for 16 million tons of crude oil to be transported from 2013 to 2018 from the Middle East. The contract amount is 200 billion won and HMM has employed a 300,000-DWT VLCC for the contract. Their partnership started 14 years ago. S-Oil is paying close attention to the current situation in that a halt of crude oil supply attributable to HMM’s court receivership can affect its facility operations although HMM’s oil tanker operations can be allowed to continue in spite of the court receivership thanks to charter rates and market segment conditions better than those in the container carrier segment.
HMM and Hyundai Glovis, in the meantime, signed a 20-year contract in 2010 for iron ore transport by two ships. The iron ore is for supply to Hyundai Steel. HMM gave up on all of its contracts with POSCO, the Korea Electric Power Corporation (KEPCO) and subsidiaries of the KEPCO early this year, when it sold its bulk carrier business to H-LINE Shipping in return for 120 billion won, but kept its contract with Hyundai Glovis in view of its relative importance.
Earlier, S-Oil and Hyundai Glovis were pretty optimistic about the future of HMM. Those in the know in the industry predicted that not HMM but Hanjin Shipping would face court receivership because the latter’s financial structure was poorer than the former’s. However, they began to be wary with the progress of the charter rate negotiations. Zodiac Maritime, which refused to join the group negotiation last week, is maintaining a hard-line stance as its contract with HMM represents a very small portion of its total sales. However, the South Korean financial authorities are maintaining that all the shipowners should agree to charter rate reduction at the same time.