Sea freight rates fell the most in 13 years. Concerns are growing that the won-dollar exchange rate will exceed the 1,400 won level as a dark cloud is forming in the business of shipping companies that have earned more than 14 trillion won in foreign currency in the first half of this year alone.
According to the shipping industry on the 4th, the Shanghai Container Freight Index (SCFI), a global shipping rate indicator, recorded 2847.62, down 306.64 points from the previous week on the 2nd. It was the biggest drop since 2009 when SCFI statistics were compiled. It is the first time since April 23 (2979.76) of last year that this index fell below 3000. Compared to the all-time high on January 7 of this year (5109.6), it fell by 44.26%.
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The Baltic Freight Index (BDI), an indicator of freight rates for bulk carriers carrying iron ore and coal, also fell 52 points on the 31st of last month to 965, the lowest since June 12, 2020 (923).
Due to the sharp drop in shipping rates, major domestic shipping companies such as HMM, Pan Ocean, and Korea Shipping are also expected to significantly reduce their foreign currency freight rates. In the first half of this year, the transportation surplus (current account item), which refers to the net profit in foreign currency transportation charges received by Korean shipping companies for transporting cargo and personnel, reached $10.635.6 billion (about 14.49 trillion won). It accounted for 42.9% of the current account surplus ($24.782 billion) in the first half of this year.
If the shipping company, which served as a ‘dollar safety plate’ along with semiconductors, falters, it is expected to take a hit to the foreign exchange market and the current account. The won-dollar exchange rate on the 2nd closed at 1,362 won and 60, up 7 won by 70, and was the highest since April 1, 2009 (1,379, 50). Some experts are concerned that the exchange rate could soar to more than 1,400 won per dollar if the dollar inflow to shipping companies decreases.
Reduced trade volume due to concerns about economic slowdown
Shipping charges for bulk carriers carrying iron ore and coal are also lowest in two years.
The expression of the ‘oldest brother in the shipping industry’ HMM shareholders is darker than ever. The company posted an operating profit of more than 6 trillion won in the first half of this year alone. The cash holdings alone exceed 12 trillion won. However, it has a market cap of 10 trillion won, which is less than even its cash holdings. It is analyzed that the observation that the ‘super cycle’ of the shipping industry has ended has dragged down the company’s stock price. The sea freight rate index, which determines the performance of shipping companies, is also falling.
HMM is neglected despite the 4th largest operating profit of listed companies
According to the Financial Supervisory Service on the 4th, HMM posted 9.95 trillion won in sales and 6.85.6 trillion won in operating profit in the first half of this year. Compared to the first half of last year, they increased by 86.6% and 152.7%, respectively. This is the highest performance in the first half of the year. The company’s operating profit in the first half of this year was the largest among listed companies, after Samsung Electronics (28.21 trillion won), SK Hynix (7.52.2 trillion won) and SK (6.63 trillion won).
Other shipping companies have also achieved remarkable results. Pan Ocean recorded 3.16 trillion won in sales and 407.9 billion won in operating profit in the first half of this year, up 74.7% and 153.4%, respectively, compared to the first half of last year. Janggeum Merchant Marine, SM Merchant Marine, Daehan Shipping, Korea Merchant Marine, etc. also achieved good results. The shipping industry expects the operating profit of domestic shipping companies to reach 10 trillion won in the first half of this year.
Korean shipping companies including Hanjin Shipping, Hyundai Merchant Marine (now HMM) and STX Pan Ocean (now Pan Ocean) dominated the global shipping industry from the 1990s to the mid-2000s. It has achieved considerable performance with global shippers as its customers. However, the heyday of these shipping companies ended after the global financial crisis in 2009. Continuing the deficit, Korea Shipping filed for court management in 2011, and Hanjin Shipping went bankrupt in 2017.
The shipping industry has been slowly out of the tunnel since the second half of 2020. As Hanjin Shipping went bankrupt, there was a relatively short supply of ships to go to and from the route, and the volume of marine shipments skyrocketed immediately after the COVID-19 outbreak. The Shanghai Container Freight Index (SCFI), which aggregates the spot rates of 15 container ships departing from Shanghai Port in China as a global shipping rate index, reached an all-time high of 5109.6 on January 7 of this year. The SCFI, which was moving between the 700-800 line in 2019, jumped 7 times.
Fare to bend… goals go down
However, recently, there are voices of concern that the heyday of the shipping industry is over. The SCFI, which judges the shipping industry’s performance, recorded 2847.62 on the 2nd, down 306.64 points from the previous week. The decline was the largest since 2009 when SCFI statistics were compiled. This is a 44.26% drop from the record high on January 7th (5109.6). The Baltic Freight Index (BDI), a bulk carrier fare index, also fell 52 points on the 31st of last month to 965, the lowest since June 12, 2020 (923).
The drop in the sea freight rate index is due to the fact that shipping companies have rapidly increased the number of ships. Eom Kyung-ah, a researcher at Shinyoung Securities, said, “Global shipping companies outside the top 10 are competing for freight rates by increasing the amount of ships used on routes from Asia to the US.” According to Clarkson, a shipbuilding and shipping analysis agency, the number of new container ships that shipping companies take over from shipbuilders between 2017 and 2022 stayed at around 1 million TEU (1 TEU is one 6m-long container). However, it is expected to exceed 2.5 million TEU next year.
There are also observations that the increase in freight volume will be sluggish. Yang Jong-seo, a senior researcher at the Export-Import Bank of Korea, said, “Consumption in major advanced countries will contract as inflation and interest rate hikes continue in the second half of this year.
In the financial market, shipping companies are lowering their target stock prices one by one. Last month, Shinyoung Securities lowered its HMM target price from 42,000 won to 24,500 won. Daishin Securities lowered it from 29,000 won to 27,000 won. Samsung Securities lowered its target price for Pan Ocean from 11,500 won to 10,500 won.
Some experts have negative views on shipping companies’ aggressive investments. HMM decided to invest 15 trillion won by 2026 to expand the capacity of container ships from the current 820,000 TEU class to 1.2 million TEU class. It plans to increase the number of bulk carriers from the current 29 to 55.
An industry official said, “During the boom in the mid-2000s, Korea Shipping and others expanded their business (chartering), which used large-scale rentals at high prices, but suffered a liquidity crisis in the aftermath of the global financial crisis.” It could be,” he pointed out.
By Kim Ik-hwan, staff reporter lovepen@hankyung.com