[Editorial Note] Shipping Policy Overshadowed by "Relocation of Ministry of Oceans and Fisheries to Busan"

Double Burden of US-China Conflict and Carbon Tax
Restoring Competitiveness Impossible Without Support

Hyunkil Oh, Deputy General Manager, Industrial IT Department

"The shipping industry accounts for 99.7% of Korea's exports and imports, yet it receives little public attention."

The first statement made by Park Jungseok, Chairman of the Korea Shipowners' Association, to the press on the 28th after taking office was filled with regret over the lack of interest in the industry. South Korea is the world's fourth-largest shipping nation, with domestically owned shipping companies possessing a fleet capacity of over 100 billion tons. However, in reality, the industry's status is far less impressive. There are many aging vessels, and small and medium-sized shipping companies are surviving only through policy-based financial support.

The domestic shipping industry is facing a worsening crisis due to the ongoing conflict between the United States and China. The United States has decided to impose fees on shipping companies that use Chinese shipping firms or Chinese-built vessels, which means that over 90% of the world's ships may be subject to these fees. Industry insiders fear that, in the worst-case scenario, if China responds strongly by requiring all export cargo to be transported exclusively by Chinese vessels, it could lead to massive disruption.

The U.S. government is insisting that ships entering the United States must be U.S.-built, but given that the cost of building a ship locally is about five times higher than that of a Chinese-built vessel, this demand is seen as unrealistic. It is widely interpreted that the United States, fully aware of this fact, has chosen the shipping industry as its next bargaining chip after tariffs in order to gain leverage in negotiations with China. Recently, the U.S. has also launched a workforce development program aimed at securing 250 strategic security ships and 5,000 essential maritime officers within the next decade.

There are also rising expectations that Korean shipbuilding and shipping could benefit as the U.S. increases pressure on China. However, this is no time for complacency. The International Maritime Organization (IMO) plans to impose a carbon tax of up to $380 per ton for emissions exceeding the allowable limit for large vessels over 5,000 tons starting in 2027. If the transition to eco-friendly ships is delayed, it is estimated that the annual carbon tax burden on Korean shipping companies could reach between 3 trillion and 5 trillion won. This amount is equivalent to about a quarter of the total operating profit of Korea's shipping industry.

There are limits to the shipping industry's ability to address these challenges on its own. HMM, Korea's largest shipping company, is still under the management of creditors led by KDB Korea Development Bank and the Korea Ocean Business Corporation. Since the attempted sale of shares fell through last year, the process has been virtually suspended. At a time when expertise and leadership for large-scale investment are desperately needed, valuable time is being lost.

There is also a shortage of funds to order eco-friendly vessels. The government has established a 2 trillion won crisis response fund for the shipping industry, but the industry estimates that $43.4 billion, or 64 trillion won, in green ship financing will be needed by 2030. Support from the government and political circles is urgently needed. Rather than focusing on the relocation of the Ministry of Oceans and Fisheries to Busan, which has become a topic of interest ahead of the presidential election, a deeper consideration of shipping policy must come first.