[HMM Independence③] Shipping Industry Nears End of the Year... Now Is the Right Time for Sale

[Image source=Yonhap News]

HMM, the largest container shipping company in South Korea, was a headache for the government just three years ago. Despite receiving over 7 trillion won in public funds, its performance rarely recovered, often drawing criticism as "pouring water into a bottomless jar." However, the situation dramatically reversed starting in 2020. HMM consecutively broke records for its highest-ever performance, with cash assets reaching 13 trillion won. It soared brilliantly from an ugly duckling to a swan. With HMM's value increasing, the government stepped in to find a new owner. This was officially confirmed by Minister Cho Seung-hwan of the Ministry of Oceans and Fisheries during a recent presidential briefing. It is the first time the government has publicly expressed its intention to privatize HMM.

However, as the government envisions, this is not a simple issue. The significant rise in corporate value has rather become an obstacle to standing on its own. Moreover, there are many high hurdles to overcome. We examine the challenges and solutions anticipated for the difficult privatization of HMM.

[Asia Economy Reporter Yoo Hyun-seok] The biggest factor behind HMM's improved performance is the sharp rise in global shipping freight rates due to port congestion. However, since the freight rates that drove this year's performance peaked and have been declining repeatedly, concerns about sustainability are growing. Nonetheless, the industry views the previous surge as abnormal and sees the current decline as a process of freight rate normalization. 'HMM Standing on Its Own'

According to the shipping industry on the 19th, the Shanghai Containerized Freight Index (SCFI), which represents the overall level of maritime container freight rates, fell continuously after reaching 5100 points in January and dropped to 3562.675 points on the 12th.

The SCFI began to surge in January 2020. After hitting 1022.72 points on January 3 of that year, it surpassed 2000 points in November. It then reached 3100 points in April last year, 4000 points in July, and 5000 points last January. The unprecedentedly rising index has recently fallen to around 3500 points.

The industry expects the index to continue declining. The main reason is that it had been too high for a long time. Even the current 3500 points remain at the highest level outside of last year. Given the unprecedented rise, a decline is natural. Additionally, concerns about economic downturns due to the easing of COVID-19, normalization of supply chains, and fiscal tightening and interest rate hikes by major countries are emerging. There is a high possibility of freight market decline due to increased deliveries of new ships ordered during the period of high freight rates.

The Korea Ocean Business Corporation, in its "Container Ship Market Trends and Outlook" report published last month, stated, "Due to the easing of congestion in the Americas, large-scale lockdowns in China, and increased global inflationary pressures, actual supply of ships will increase while cargo volume decreases simultaneously," and forecasted, "Freight rate decline adjustments will continue after this year."

However, the outlook is for a downward stabilization rather than an unconditional decline. Currently, the shipping industry is concerned about oversupply. From January last year to June this year, container ship orders totaled 5.97 million TEU, significantly exceeding the 4.21 million TEU ordered from 2016 to 2020. This is why there are claims that a "chicken game" among global shipping companies, as seen in the 2010s, could occur again. During the shipping boom in the late 2000s, ship orders surged. After large ships were delivered to shipping companies in 2010, a chicken game among shipping companies led to large-scale restructuring among global shipping companies.

However, due to regulations by the International Maritime Organization (IMO), some ship rationalization is expected. The IMO has decided to reduce carbon emissions by 2% annually from next year until 2026. This will inevitably lead to the retirement of existing ships and changes in fleet capacity. An industry insider said, "The IMO is imposing strong regulations," adding, "This could result in a reduction in ship supply."

Meanwhile, HMM recently announced a mid- to long-term strategy to expand not only its core container ship business but also its fleet of dedicated cargo ships. To this end, it plans to invest over 15 trillion won to increase its bulk carrier fleet from the current 29 vessels to 55 vessels by 2026, nearly doubling it. It also plans to secure logistics infrastructure such as terminals in key regions.