[131118.EN.BIZ] Renewed Calls for HMM to Merge With SM Line

THE Korea Shipowners' Association (KSA) has renewed calls for Hyundai Merchant Marine (HMM) to merge with fellow South Korean carrier SM Line to become more competitive against the leading European shipping lines.

The plea came from KSA vice-chairman Kim Young-moo during an interview with Aju News and comes at a time when shareholder frustration with leadership of the loss-making carrier intensifies. HMM recently placed an order for 20 mega ships, comprising 12 ships of 23,000 TEU and eight of 15,000 TEU.

The newbuilds are due to be delivered from the second quarter of 2020 and just when the shipping line's current vessel-sharing agreement with the 2M Alliance ends, reported IHS Media.

Whether the partnership will be extended remains to be seen since HMM will likely need to demonstrate that it is a viable business, although it would by then have the mega ships required to join the 2M's Asia-Europe strings.

Keeping one's head above water in the current container shipping market is tricky for any carrier given the rising bunker fuel costs, unprofitable freight rates and high level of excess capacity.

According to IHS Markit, the global containership fleet is expected to expand by 6.2 per cent this year, surpassing a 4.8 per cent increase in global trade. In 2019, global capacity is forecast to grow by 2.6 per cent and volume by 5.5 per cent.

State-owned Korea Development Bank (KDB), the primary lender and shareholder of HMM, is hardening its stance towards the financially strapped ocean liner. Bank chairman Lee Dong-gull has made it clear that non-performing staff of HMM will be made redundant.

"HMM has to provide a report on its performance every week and we will issue a warning if we don't see improvement after a month; three more months will be given to show improvement. If things don't get better, the staff concerned will have to leave," Mr Lee was quoted as saying.

HMM has clocked up US$1.62 billion of cumulative losses for 13 quarters, including a first-half net loss this year of $155 million.

Like its peers, the shipping line is struggling to raise freight rates to levels that compensate for rising fuel costs. The first-half loss was incurred despite a double-digit surge in volume in the second quarter as fuel prices during the period rose by 40 per cent year on year.

The pressure to recoup higher bunker costs will only rise, as the January 1, 2020, implementation date for the International Maritime Organization's (IMO) new rule capping sulphur content in marine fuel at 0.5 per cent draws closer. Analysts estimate that using lower sulphur fuel will push up costs by at least 30 per cent, an extra burden that carriers may or may not be successful in passing on to customers.

Source : HKSG.