Survival Based On Economic Scale

Hyundai Merchant Marine is expected to place orders of 20 vessels –- 12 12,000-TEU vessels and eight 13,000-TEU vessels –- one by one, starting in March.
Hyundai Merchant Marine is expected to place orders of 20 vessels –- 12 12,000-TEU vessels and eight 13,000-TEU vessels –- one by one, starting in March.

 

Hyundai Merchant Marine, virtually the only large ocean-going shipping company of Korea will start ordering ultra-large vessels that can transport 22,000 20-foot containers beginning next month at the earliest.

According to the government and the shipping industry on February 11, the Ministry of Oceans and Fisheries will announce the 'Five-Year Plan for the Reconstruction of Korean Shipping' at the end of this month. When the five-year plan is announced, the Founding Committee for Korea Maritime Promotion Corporation launched on February 5, will begin to provide financial support. The corporation can issue bonds up to four times its capital (3.1 trillion won or US$2.7 billion) and manage up to 12 trillion won (US$10 billion) in funds. The Ministry of Oceans and Fisheries said that the ministry will support the ordering of 50 vessels this year.

As Korea Maritime Promotion Corporation will be founded to fill vacancy left by Hanjin Shipping which went under, the corporation is expected to focus on expanding ocean-going Korean shipping company Hyundai Merchant Marine. "If the reconstruction plan is announced, Hyundai Merchant Marine will come up with a survival plan," said an official of Hyundai Merchant Marine.

A future vision outlined by Hyundai Merchant Marine in line with the shipping reconstruction plan is summarized into “a super large fleet, the invasion of Europe and forming new alliances.” First of all, Hyundai Merchant Marine will place orders of 20 vessels –- 12 12,000-TEU vessels and eight 13,000-TEU vessels –- one by one, starting in March.

There is quite a slim possibility that Hyundai Merchant Marine will survive in the long term in the world shipping market while maintaining the current size. Economies of scale already became rules of the market. Maersk belonging to the same alliance 2M as Hyundai Merchant Marine has 786 vessels, a hold of 423,000 TEUs (including orders and chartered vessels), and MSC, a hold of 318,000 TEUs. China's Cosco also merged with OOCL of Hong Kong this year, resulting in an annual hold of 2.55 million TEUs. ONE which integrated three Japanese shipping companies will grow to have a hold of 1.5 million TEUs. Hyundai Merchant Marine with a hold of only 430,000 TEUs is a small player compared to them. The industry expects that only six ships with one million-TEU tonnage will survive in the next two to three years.

If Hyundai Merchant Marine secures 20 10,000- to 20,000-TEU vessels, the hold of its fleet will climb to 800,000 TEUs. The purpose of securing 20,000-TEU ultra-large ships is to establish a new European route. Services from Asia to the west coast of North America and Europe and the east coast of the Americas holds the key to a shipping company’s being recognized as an ocean-going shipping company on the international stage. Hyundai Merchant Marine is currently carrying cargoes on 2M vessels without its vessels in a route from Asia to Europe. It goes the same for HMM’s service to the east coast of the Americas.

Hyundai Merchant Marine which will expand in size is expected to launch a new European route by putting six super large ships in one route. With respect to services to the east coast of the Americas, Hyundai Merchant Marine is expected to offer a service to cover the west coast of the Americas, Panama Canal and the west coast of the Americas at one go by cooperating with Israeli shipping company ZIM Line (with a hold of 380,000 TEUs). Since the Panama Canal has expanded to pass 14,000-TEU vessels, 13,000-TEU vessels will be deployed in the service. Hyundai Merchant Marine is expected to place an order to build eight 13,000-TEU vessels. Accordingly, there is a big possibility that Hyundai Merchant Marine's three routes to North America will increase by one or two.

All of these plans are focused on the reorganization of shipping alliances. Shipping alliances began to form usually one year before their launches and submit resolutions to the US Federal Maritime Commission (FMC) six months before them. It is predicted that Hyundai Merchant Marine’s shipping alliance will be forged to enhance control of North American routes which European shipping companies are making attempts to take control of by uniting with Chinese and Japanese shipping companies.

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