As the “Bill on the Establishment of the Korea Maritime Corporation (KMC),” which was proposed by Rep. Lee Gae-ho of the ruling Minjoo Party of Korea, passed the Legislation and Judiciary Committee on December 20, South Korean flag carrying ocean-going shipping company Hyundai Merchant Marine (HMM) is expected to grow in size without any problems.
The Ministry of Oceans and Fisheries (MOF) announced on December 21 that it will form a seven-member establishment committee to be led by vice minister according to the corporation act as soon as possible to establish the KMC by the end of July when the bill is passed.
The KMC will be set up with an initial capital of 3.1 trillion won (2.86 billion) up to 5 trillion won (US$4.62 billion), including a 51 percent stake financed by the government – 1.35 trillion won (US$1.25 billion) of spot goods and 200 billion won (US$184.81 million) of cash.
When the KMC is launched, HMM will also grow in size. According to the corporation act, it can issue bonds worth up to four times higher than its legal capital. In short, the public corporation can issue 12.4 trillion won (US$11.46 billion) worth of bonds in case that the initial capital is of 3.1 trillion won (2.86 billion). Accordingly, HMM plans to order ultra-large container vessels (ULCVs) sequentially from early next year. The KMC and HMM will inject more than 3 trillion won (US$2.77 billion) into ordering a total of 20 ships, including nine 20,000 TEU-class ULCVs and 11 vessels with capacities of over 13,000 TEU to jump up to be the world’s seventh or eighth largest shipping firm by one effort.
In particular, the KMC will accelerate the speed of support with a chant of the reconstruction of the shipping industry. It can issue a letter of intents (LOI) even at the Committee stage when HMM announces its plans to order ULCVs on condition of the payment of 10 percent of order prices. When the public corporation guaranteed by the government jumps into ordering ships, financial institutions can lessen the burden of participation.
Hanjin Shipping went downhill as shipping giants, such as Denmark’s Maersk Line and Switzerland's MSC, loaded 20,000-TEU ULCVs with a lot of freight instead of low unit costs, in the aftermath of the global depression. In order to overcome this difficulty, Japan will merge its three shipping companies – MOL, NYK and K Line – next year and also merge COSCO with capacities of 1.81 million TEU with Hong Kong's OOCL with capacities of 670,000 TEU, the seventh biggest shipper in the world, by 2020, to grow in size. HMM has a total cargo service capacity at 430,000 TEU, with Maersk with 3.55 million TEU and MSC with 3.12 million TEU from its 2M shipping alliance.
As the corporation act has passed, HMM is able to keep the golden time for orders. The company will stand at the crossroads of survival or take-off in 2020. HMM reached an agreement to lower charter costs for three years and six months with ship owners around the world on condition of the pursuit of its self-rescue plan in June last year. Accordingly, charter costs will go up again in 2020. In addition, the company’s strategic partnership with 2Ms will end in early 2020, HMM should seek to survive by growing in size.
Since it will take two years for HMM to receive its ULCVs ordered, the company needs to place an order for vessels at least earlier next year. As the corporation act has passed, the enlargement project will go off as scheduled.