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[INTERVIEW] State agency cautions against early optimism in S. Korean shipping industry

By Lim Chang-won Posted : July 2, 2021, 10:47 Updated : July 2, 2021, 10:47

[Courtesy of Korea Ocean Business Corporation]

SEOUL -- Helped by a rise in international freight rates and improved competitiveness, South Korea's shipping industry is forecast to post about 40 trillion won ($25.2 billion) in annual sales in 2021 by achieving a high-efficiency, low-cost structure through three years of painful restructuring coupled with a government relief package that began in early 2017 when Hanjin Shipping, which used to be the country's top container carrier, terminated its 40-year-long business.

On June 29, the Ministry of Oceans and Fisheries unveiled the goal of doubling revenue in South Korea's shipping industry by 2030. The Korean Ocean Business Corporation (KOBC), a state-run entity launched in 2018 to support South Korean shippers and shipbuilders, cautioned against any early optimism, saying the recent increase in freight rates has benefited from port congestion caused by a COVID-19 pandemic.

"The increase in freight rates has benefited from the continuation of port congestion due to the influence of COVID-19. I think that the business boom is continuing due to the combination of changes in the business environment and the preemptive policy support of our corporation," KOBC head Hwang Ho-sun said in an interview with Aju Business Daily. "Despite the recent good performance, our shipping industry has yet to fully improve its financial structure."

South Korea's shipping industry saw annual sales tumbling from 39 trillion won in 2015 to 29 trillion won in 2016 due to falling freight rates and a protracted slump in the global economy. HMM, formerly known as Hyundai Merchant Marine, has enhanced its international competitiveness and profitability through corporate management innovation and restructuring.

"We need to further strengthen the global competitiveness of our ocean shipping companies," Hwang said, adding HMM has yet to make up for accumulated losses and reduce financial costs, although the country's largest shipper controlled by creditors turned a profit in 2020.

"KOBC will keep providing its support needed to strengthen HMM's financial soundness and global network sales competitiveness so that it can recover its credit enough to raise funds smoothly in the market for itself," Hwang said.

KOBC has played a crucial role in the rehabilitation of HMM and other shippers. "South Korea is a country that relies on 70 percent of its trade. Some 99 percent of the trade volume is dependent on shipping," Hwang said, characterizing shipping as "a security industry that has a very large front-to-back effect and guarantees national competitiveness."

"The shipping industry has been in recession for more than a decade since the Lehman Brothers crisis in 2008. The shipping industry was so depressed that it was impossible to place orders or investments in new technologies. But I couldn't just watch the shipping industry collapse," Hwang said. "I was aware of the importance of shipping and had a sense of mission to prevent the collapse of shipping."

HMM's operating profit amounted to nearly one trillion won in 2020, ending a 10-year-long deficit through financial support, structural improvement and the provision of shipping-related information for three years, Hwang said, adding South Korea's shipping capacity for offshore container carriers stood at 800,000 twenty-foot equivalent units (TEUs) in 2020, up 340,000 TEUs from 2017, and restored its past level. TEU is an inexact unit of cargo capacity often used to describe the capacity of container ships.

KOBC called for the quick introduction of eco-friendly vessels to cope with strengthened international regulations on greenhouse gas emissions. The International Maritime Organization (IMO), a U.N. maritime safety agency, has adopted mandatory energy-efficiency measures to reduce greenhouse gas emissions from ships. Hwang promised to provide state subsidies and special guarantees for installing eco-friendly facilities.

(This story is based on an interview conducted by Aju Business Daily reporter Park Sung-jun)

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