Strong Performance of Transportation Stocks in Q3, Clear Outlook for Next Year

HMM's Record-Breaking Quarterly Performance
Annual Profit Forecasted for the First Time in 10 Years
CJ Logistics Also on a Solid Path

[Asia Economy Reporter Park Ji-hwan] Domestic land and maritime transportation companies showed mostly strong performance in the third quarter of this year due to increased logistics demand caused by the impact of the novel coronavirus disease (COVID-19). It is expected that the boom will continue next year thanks to the ongoing transportation demand.

According to the financial investment industry on the 23rd, HMM (formerly Hyundai Merchant Marine), the nation's top shipping company, posted record quarterly results with consolidated sales of 1.7185 trillion KRW and operating profit of 277.1 billion KRW in the third quarter of this year. This marks two consecutive quarters of strong performance following 138.7 billion KRW in the second quarter. Net profit also turned positive during the same period, reaching 24.6 billion KRW. An annual operating profit surplus is becoming a foregone conclusion for the first time in 10 years.

The improvement in these results is attributed to the record-high maritime freight rates. The Shanghai Containerized Freight Index (SCFI), which indicates trends in maritime freight rates, recorded 1938.22 points as of the 20th, up 80.99 points from the previous week. The SCFI, which releases new indices every Friday, has been breaking weekly records since the related data collection began.

The rise in container freight rates is analyzed to be due to supply shortages caused by increased container demand in the Americas and Europe. While the container supply growth rate this year is around 2%, the demand growth rate has exceeded this since the third quarter. Shipping companies reduced vessel capacity by up to 40% after the COVID-19 outbreak earlier this year, leading to a logistics crisis starting in the third quarter. The container supply-demand balance is expected to remain in a phase where demand outpaces supply until 2022. Companies like Pan Ocean and Korea Line are also expected to see performance improvements starting from the fourth quarter this year, thanks to the improved market conditions. Pan Ocean's operating profit in the third quarter was 62.9 billion KRW, a 1% decrease compared to the previous year, but it is forecasted to increase by 16% year-on-year in the fourth quarter. Korea Line is also estimated to record a 90% increase in operating profit to 36 billion KRW in the fourth quarter.

In land transportation, CJ Logistics is gaining attention. CJ Logistics' strength lies in its large-scale investment in facility automation, boasting an automation rate more than five years ahead of competitors and a strong shipper network. Especially from next year, the gap between competitors due to logistics automation competitiveness is expected to widen further. There is also speculation about the possibility of parcel delivery fee increases, which would have the greatest impact on profitability improvement. The government sympathizes with fundamentally normalizing the pricing system in the parcel delivery industry to improve the treatment of delivery workers. In particular, CJ Logistics, which has already invested in improving working conditions in advance, is expected to fully benefit from the price increase. Kim Yoo-hyuk, a researcher at Hanwha Investment & Securities, said, "The entire industry is expected to raise parcel delivery fees next year," adding, "If parcel delivery fees increase by 100 KRW (5.0%), CJ Logistics will generate an additional 180 billion KRW in sales, and even considering the costs of improving working conditions, it will be able to maintain a profit growth trend."

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