Nurturing Mega Shipper
The South Korean government has decided to help Hyundai Merchant Marine (HMM), the nation’s only major shipping line, grow into a mega shipper by all means available. It plans to provide loans of up to 6.5 trillion won (US$5.68 billion) to domestic shipping firms, including HMM, so that they can grow in size and survive in the global chicken game.
The government held the sixth ministers’ meeting to strengthen the industrial competitiveness on October 31 with Yoo Il-ho, Deputy Prime Minister for Economic Affairs and Minister of Strategy and Finance, presiding over. At the meeting, ministers announced plans to raise the competitiveness of the shipbuilding and shipping industries. The plans were focused on enlarging HMM, which is actually the only one global shipping company from the nation, in order to boost its competitiveness in the global market. The game of chicken has continued in the global shipping market as global shipping giants, such as Denmark’s Maersk Line, Geneva-based Mediterranean Shipping Co. (MSC), and France’s CMA CGM SA, have cut shipping costs by increasing the number of mega ships that can carry a large amount of freight at once.
However, the nation’s two largest shipping companies – Hanjin Shipping Co. and HMM – misjudged the business situation and missed the opportunity to order mega ships. It lowered their cost competitiveness, and they had also spent a lot of money to charter ships. As a result, Hanjin Shipping is now under a court receivership, while HMM is under a creditor-led debt restructuring scheme.
Considering such situations, the plans are designed to make shipping firms large and reduce costs. The government will double the size of a ship fund to help HMM order mega-sized vessels to US$2.4 billion (2.6 trillion won) from US$1.2 billion (1.3 trillion won). With the money, the shipping company can order 20 13,000-TEU mega container ships.
In addition, the Korea Development Bank and the Export-Import Bank of Korea (Korea Eximbank) will establish Korea Ship Corporation worth 1 trillion won (US$873.36 million) by investing an 80 percent stake. The new ship company plans to buy ships owned by domestic shippers, including HMM, at the market price and re-charter them at lower prices. The Korea Asset Management Corporation (KAMCO) will also raise ship funds worth 1.9 trillion won (US$1.66 billion) by 2019, acquire small and mid-size vessels and re-lend them. This is to reduce charter costs which account for most of HMM’s spending, by re-lending ships.
In addition, it will secure global port infrastructure. Making best use of ship funds, the KAMCO will seek to acquire a container terminal at the global major port owned by Hanjin Shipping. It will also jointly invest in shares so that shipping companies can purchase assets, such as terminal and harbor equipment, by expanding global shipping funds to 1 trillion won (US$873.36 million) by 2020.