COVID-19 and Economic Recession... A Long Road Ahead for Maritime Reconstruction

"Government and Policy Finance Authorities Must Accelerate Support for the Shipping Industry"

[Image source=Yonhap News]

[Asia Economy Reporter Yu Je-hoon] Although the reconstruction of South Korea's shipping industry is getting on track, the external environment is worsening day by day. Since the beginning of the year, adverse factors such as the novel coronavirus infection (COVID-19) that has struck the world and the US-China trade dispute reignited by the 'Hong Kong Security Law' have been piling up.

According to the industry on the 2nd, the Shanghai Containerized Freight Index (SCFI), a representative container ship freight rate indicator, recorded 1001.33 as of the 26th. This is similar to the level in early January before the COVID-19 pandemic fully spread. In particular, freight rates on the Asia-West Coast of America route are soaring due to supply-demand mismatches. It recorded $2,692 per FEU (a unit referring to one 40-foot container), rising about 60% compared to the beginning of the year. This route also accounts for 30-50% of the sales of domestic shipping companies such as HMM and SM Line. Some expect that HMM will turn profitable after the third quarter of this year due to this.

However, the industry agrees that uncertainties remain large. The recent freight rate increase is more due to shipping companies and shipping alliances reducing supply through temporary suspensions of sailings (blank sailing) rather than an increase in cargo volume. It is a kind of 'optical illusion.' According to data from Clarkson, a British shipbuilding and shipping analysis agency cited in a recent report by the Korea Ocean Business Corporation, maritime cargo volume this year is expected to be 179.81 million TEU (a unit referring to one 20-foot container), down about 8.5% from the previous year.

An industry official said, "HMM has economic efficiency through its ultra-large vessel strategy, but the high-cost charter fee problem still remains, and other small and medium-sized shipping companies are worried about bankruptcy despite profits due to liquidity crises caused by COVID-19," adding, "The government and financial authorities need to support structural improvements more actively and speed up support for the idle period industrial stabilization fund so as not to miss the golden time."

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