"Shipping Companies Need Long-Term Management Plans Through Capital Allocation and M&A"

Samjong KPMG Publishes 'Shipping Industry Trends and Outlook' Report

[Asia Economy Reporter Minji Lee] Amid rising concerns over the shipping industry's crisis, with the ClarkSea index, a profitability indicator for shipping companies, plunging 50% due to the impact of the novel coronavirus disease (COVID-19), an analysis has emerged that domestic shipping companies need to establish new management strategies such as capital allocation and mergers and acquisitions (M&A) to overcome the crisis.

According to the report "Shipping Industry Trends and Outlook Due to COVID-19" published by Samjong KPMG on the 2nd, global maritime trade volume is expected to decrease by 4.7% this year compared to the previous year due to COVID-19, and the damage to the shipping industry is anticipated to be similar to or exceed that of the 2008 financial crisis. The report suggested that shipping companies should establish emergency management plans capable of responding to various crisis situations and review step-by-step response measures.

Looking at the first-quarter performance of the top five listed domestic shipping companies by sales last year, total sales decreased by 5.9% compared to the same period last year, and the average operating profit margin also fell by 2.4 percentage points. Total liabilities recorded 10.1886 trillion KRW, an increase of 7.3% compared to the previous year, while the debt ratio slightly decreased to 198.4% compared to the same period last year.

The report identified representative potential crisis situations in the shipping industry as ▲ the end of the ultra-low oil price era ▲ uneven economic recovery among major exporting countries ▲ reignited US-China trade conflicts, and introduced the impacts of these issues on the shipping industry and the response measures for shipping companies.

If the ultra-low oil price era ends, continuous oil price increases in the future could raise operating costs for shipping companies, necessitating consideration of transitioning to eco-friendly energy-powered vessels such as LSFO (low sulfur fuel oil) or LNG. Accordingly, it is necessary to establish stable fuel supply plans and rapidly advance the development of eco-friendly and high-efficiency vessels.

Import demand from Europe and the United States could directly negatively affect the global shipping industry. Additionally, as factories worldwide have shut down, reshoring (the return of overseas enterprises to domestic manufacturing) of manufacturing plants may accelerate to reduce related risks. Consequently, there is a need to reorganize routes that were concentrated on the US and China and establish new shipping routes. Furthermore, in preparation for the post-COVID-19 era, long-term plans regarding capital allocation and M&A should be built to create conditions that allow market dominance once the shipping market downturn ends.

Finally, if US-China trade conflicts reignite, it could directly impact the domestic shipping market, which has a high trade dependency on the US. Shipping companies must continue efforts and preparations to overcome long-term liquidity crises by selling core assets, continuously reducing costs, and improving operational efficiency.

This content was produced with the assistance of AI translation services.