As the shipping industry is reviving, Korean shipping companies are also whistling. The Shanghai Container Freight Index (SCFI), an indicator of the container market, recorded 3785 as of the fourth week of June, breaking another record this year. It's not just containers that are good. The Baltic Freight Index (BDI), which is considered a barometer of global economic indicators, is also on the rise.
The bulk market, which had been stagnant compared to containers, is on an upward trend in the second quarter. The BDI in the fourth week of June was 3177, up 51 points from the previous week. In the second quarter, it maintained a stable trend at 3,000 units. This year's average BDI fare is 2229, which has already surpassed last year's average of 1066.
In this situation, shipping companies are also attracting attention from the market every day. It is clear that not only HMM, which has succeeded in revitalizing superlarge ships, but also bulk carriers are looking forward to this year more than ever.
Korea Shipping to strengthen competitiveness through capital increase
Korea Shipping, a bulk carrier of SM Group, recorded an operating profit surplus for 30 consecutive quarters after being incorporated into SM Group in 2013. Korea Shipping's consolidated operating profit in the first quarter of this year was 40.7 billion won, up 20% from the first quarter of last year. Sales decreased 2.3% to KRW 225.5 billion, and net profit increased by 24% to KRW 52.9 billion.
An official from Korea Shipping explained, “In the first quarter of this year, operating profit and net profit were significantly increased by adjusting the fleet of tramp ships and reducing costs.” In addition, Daehan Shipping is accelerating its transformation into the ecofriendly energy business through its 100% subsidiary, Korea Shipping NG. In addition, it has secured a stable source of revenue by continuously signing long-term contracts with excellent overseas shippers.
The capital increase was also successfully completed. Korea Shipping announced on June 17 that the payment of the capital increase (general public offering of effective shares after allocation of shareholders) by the resolution of the board of directors on March 31 had been completed. The number of newly issued shares is 7,496,370 shares, and the issuance amount is about 186.5 billion won. Prior to this, Korea Shipping had set the issuance price of new shares through a paid-in capital increase at 2,940 won.
Korea Shipping plans to strengthen its financial structure and secure competitiveness in its global business. Korea Shipping expects that all the funds secured through the capital increase will be used to repay borrowings.
The shipping industry is a traditional capital intensive industry. The reason why Korean shipping suffered ups and downs after Hanjin Shipping's bankruptcy in 2017 was that it was lagging behind in placing orders for extra-large ships compared to global shipping companies. Accordingly, shipping companies try to expand capital through preemptive investments when the market conditions are good. Korea Shipping is also expected to strengthen its competitiveness through a capital increase.
Established in 1968, Korea Shipping is engaged in the business of exclusive vessels (dry cargo, LNG), tramp ships (dry cargo), tankers (LPG&Product), and automobile ships (PCTC). Major customers include POSCO, Korea Electric Power Corporation, Korea Gas Corporation, and Hyundai Glovis, and were incorporated into SM Group in 2013. Currently, SM Group is the largest shareholder with a 55% stake in Korea Shipping. In addition, Korea Shipping holds a 71.34% stake in Korea Merchant Marine.
SM Group, which established 'SM Merchant Marine' by acquiring Hanjin Shipping's assets, is currently operating three companies SM Merchant Marine, Korea Shipping and Korea Merchant Marine, expanding its influence in the shipping market. The container shipping is handled by SM Merchant Marine, and the bulk carrier sector is handled by Korea Shipping and Korea Merchant Marine.
92% of sales in the dedicated line segment
The BDI, which had plummeted in May alone, has recently recovered to 3,000 units. This means that even if the BDI is high, no one can predict when another bear market will come. In this situation, shipping companies must prepare for market uncertainty.
Accordingly, Korea Shipping is continuously expanding its fleet of exclusive vessels such as ultra-large crude oil carriers, liquefied natural gas (LNG) carriers, and LNG bunkering carriers. The tramp line business is also reducing its business and preemptively preparing for unstable market conditions.
What is positively evaluated in Korea Shipping's portfolio is the high proportion of long-term transportation contracts. Long term transportation contracts have the advantage of securing stable profits even in bad market conditions. Korea Shipping has secured dedicated lines through long-term transportation contracts with POSCO, Korea Gas Corporation, Hyundai Glovis, and Korea Electric Power Corporation. In terms of sales, the exclusive line segment accounted for the largest share at 92%. The tramp sector accounted for only 7%.
The bulk carrier division can support stable sales of shipping companies. In January, Korea Shipping expanded the number of ultra large crude oil carriers to four, further expanding the dedicated vessel sector. On January 30, Korea Shipping held a takeover ceremony for the super large ship 'SM VENUS2', which will be additionally used to transport GS Caltex crude oil. The vessel will transport crude oil from all over the world to Korea over the next five years. Accordingly, the number of ultra-large crude oil carriers operated by Korea Shipping has been expanded to a total of four, and two ships were put into GS Caltex and S-Oil each.
In general, the beneficiary of freight rate increases for shipping companies appears in the way that the operating profit of the vessels they currently own increases when sea freight rates rise. However, Korea Shipping is characterized by a very low operating ratio of tramps exposed to freight rates. Shinyoung Securities analyzed that Korea Shipping could make a profit by selling container ships owned by its subsidiary, Korea Merchant Marine, to SM Merchant Marine, an actual user, at a market price.
At the same time, Korea Shipping must also respond to environmental regulations, the biggest change the shipping industry will face in the future. In order to comply with the International Maritime Organization (IMO) convention, which mandates ballast water treatment systems, Korea Shipping, out of 56 managed vessels as of the end of last year, had 38 equipped with the system (24 Daehan Shipping, 5 Korea Shipping LNG, and Korea Shipping). 9 merchant ships) are in operation. In addition, for the regulation of sulfur oxide emissions, both are being considered, including the use of low-sulfur oil and the installation of a desulfurization device.
