What the shippers need

Korea’s two major cargo carriers, Hyundai Merchant Marine and Hanjin Shipping, are on track for restructuring under a management and debt relief program agreed to by creditors. But much needs to be done before they can return to smooth sailing.

Hyundai Merchant Marine is in the final stage of lowering charter fees on its fleet and must try to join a new shipping alliance. Hanjin Shipping, which was able to get into a newly formed multinational alliance for Asia-Europe trade routes, must address a myriad of challenges to normalize operations.
The shipping and airline industries fall under the same transportation category. The aviation industry is usually about 10 years ahead of its maritime counterpart in management and technology. Lessons can be learned from its coping with challenges.

The current maritime industry woes resemble the decade-long slump from the late 1970s. The global shipping industry sank due to a sharp reduction in cargo trade following the second oil shock.

Companies vied heavily through price competition. Sea alliances were shaken after free competition was encouraged under the 1984 shipping act. Cargo carriers competitively brought down freight rates, forcing debt-ridden shippers to go under.

The government forced restructuring on the industry. Some companies were able to weather the challenges by adopting the management tactics of the aviation industry.

Some shippers had help from airlines to improve their management and balance sheets. They learned how to bring down costs and rationalized routes.

They introduced flight crew-style work shifts and reduced the ratio of sailors deserting their job, which had reached 20 percent a year. Sailing schedules were rationalized.

By benchmarking the airline industry, shippers were able to make profits again. The industry can once more look to the aviation sector for inspiration. This time, they should benchmark the way aircraft are built to rationalize their fleets.

Vessels are designed for the needs and purposes of the shipowner. Ships are all uniquely made, as they are customized to meet the needs of the shipowner. A lot of time and money is needed to own a ship.

Korean shipping companies must be able to own and sail a fleet of above 18,000-TEU capacity container ships boasting more than 20 percent efficiency in fuel and operations for economies of scale. But under current liquidity circumstances, they can hardly afford it.

But if local shipbuilders and shipping companies join forces to standardize a new model of eco-friendly ships, shippers can solve the problem of raising competitiveness through cost-saving efforts, while local shipyards can again secure enough orders to run their dockyards.

The domestic shipping industry handles 99 percent of the country’s cargo for exports and imports, and 100 percent of strategic imports. If the shipping industry goes down, the economy’s base could be shaken. The country must support the shippers to save itself and help them get back on their feet. The requirements of joining a shipping fund — a debt ratio of under 400 percent and 10 percent commitment from ship owners — should be eased to vitalize fund-raising for shippers. Bondholders and financial lenders should also help out by agreeing to debt rescheduling.

The ongoing shipping restructuring is too focused on bringing down costs and debt. Balance sheets will certainly improve in the short term, but the industry’s competitiveness could be weakened in the longer run. The government must come up with more farsighted and strong ways to revive the industry, along with efforts to improve its financial state. The restructuring must also be in tune with market needs so as not to lose confidence. That is the only way to restore the country’s once mighty reputation and rank in the global shipping world.

Translation by the Korea JoongAng Daily staff.

JoongAng Ilbo, June 3, Page 29

*The author is a professor at Incheon National University and vice chair of the Korea Port Economic Association.

Ahn Seung-bum