The Korean strategy
It’s no secret that economic aspects are not alone in deciding the approach in the container industry. Thus the South Korean state was involved when HMM ordered its latest batch of huge new ships. In the process it was perhaps robbing Peter to pay Paul.
At the end of September the South Korean carrier Hyundai Merchant Marine (HMM) fixed an order for 20 more ultra-large containerships (ULCVs). The ink had hardly dried on contracts signed with three shipyards – Daewoo Shipbuilding & Marine Engineering (DSME), Hyundai Heavy Industries (HHI) and Samsung Heavy Industries (SHI) – when the extent of state support for the move became public. The large South Korean shipping line remaining after the Hanjin bankruptcy can bank on financial support from the South Korean state for a part of its total investment of approximately USD 5.4 billion. The main factor motivating the latter is ‘maritime autarchy’. This approach is also propagated by other Asian states – and not only them.
Two sides of the coin
The contracts signed with the shipyards envisage that DSME will build seven of the new ULCVs, and SHI five, with all of the units sporting a 23,000 teu capacity. The twelve vessels are due to be delivered in the second quarter of 2020. HHI, in turn, will build eight 14,000 teu ships, which are scheduled to commence operations one year later, that is to say in the second quarter of 2021.
The notifications did not come as much of a surprise, as HMM had already announced its fleet expansion plans in December 2017. The new-
buildings form part of HMM’s overarching strategy of attaining a global market share of the container shipping industry of about 5% by the year 2021. On top of this the move has also been designed to increase the carrier’s weight in negotiations with customers, as well as with the major alliances.
Any objections against the use of state funds are likely to calm down again soon, not least because South Korea is, understandably enough, seeking to retain its global ranking amongst the top three large shipbuilding nations – despite declining orders. It forms a trio with China and Japan that accounts for 90.5% of all newbuildings worldwide, according to Unctad’s Review of Maritime Transport 2018.
Strengths in the containership segment
Whilst China and Japan are ahead for bulk and breakbulk freighters as well as chemicals goods units, amongst other sectors, South Korea, is traditionally strong in the containership and oil tanker segment. This is not a position it is willing to give up all too easily.
On top of this fund managers are now considering shipbuilding entities in an new light – having analysed them rather critically for a long time. Macquarie Fund has ascertained that four out of five of the world’s strongest large shipyards are located in South Korea, and the sector industry is about to enter a boom phase in the country. The basic message is that strict restructuring and state subsidies are bearing fruit. Perhaps the shipping line HMM can gain the same benefit. Its loss of USD 337.3 million in H1 / 2018 was higher than in the previous year, after all.