[The Editors' Verdict] The Role of National Fiscal Policy Shown by 20 Container Ships

[Asia Economy Reporter Choi Il-kwon] Achieving an unprecedented $300 billion in exports in the first half of this year symbolically demonstrated that the global economy has been showing a clear recovery since the COVID-19 pandemic. However, even if export contracts are finalized, if there are no proper means to transport the goods, the export figures for the first half would have been lower. It cannot be denied that the role of ships transporting export items such as automobiles and semiconductors was also significant behind the record export performance. Especially considering the recent surge in cargo volume making it difficult to secure vessels, this role appears even more prominent.

Inside and outside the government, including the Ministry of Oceans and Fisheries, the large-scale ship orders by the shipping company HMM (formerly Hyundai Merchant Marine) three years ago have been a hot topic. At that time, HMM placed orders for 20 ultra-large container ships in line with the government’s ‘Five-Year Plan for Shipping Reconstruction,’ and as the shipping market began to recover, the ships started to be delivered, turning HMM into a success story. In September 2018, HMM ordered a total of KRW 3.1531 trillion worth of vessels, including 12 ships of 24,000 TEU class and 8 ships of 16,000 TEU class, financed by major shareholders such as the Korea Development Bank, Export-Import Bank of Korea, Korea Ocean Business Corporation, and private financial companies.

However, there were considerable obstacles before deciding to invest over KRW 3 trillion. Despite the Ministry of Oceans and Fisheries’ insistence on revitalizing the shipbuilding and shipping industries after the bankruptcy of Hanjin Shipping in 2016, these sectors were still struggling with a downturn, and there was significant opposition within the government. Both the Ministry of Strategy and Finance, responsible for fiscal matters, and the Financial Services Commission, in charge of actual fund allocation, expressed negative views on large-scale capital injection. This was understandable as HMM was recording nearly KRW 1 trillion in annual losses and was dependent on financial support from the Korea Development Bank. Concerns that increasing the number of ships without a recovery in the shipping market would be like “pouring water into a bottomless jar,” worsening insolvency, gained traction. A senior official from the Ministry of Oceans and Fisheries recalled, “It was not easy to keep insisting on increasing the number of ships when everyone was opposed.” Eventually, after persuading the Blue House with global cargo volume forecasts, the order for 20 ultra-large container ships was realized.

Starting with the world’s largest container ship, the Algeciras, last year, HMM received and deployed the ships one by one. On the 29th of last month, the departure ceremony for the last of the 20 ships, the Hanul, was held.

This ultimately became a win-win strategy that revived both the shipbuilding and shipping industries. The shipbuilding sector escaped a dry spell of orders, and HMM, having increased its fleet capacity, began to recover profits as shipping rates rose. There was even a situation where exports were difficult due to a lack of vessels. The Shanghai Containerized Freight Index, an international container freight rate indicator, recently approached the 4,000 mark, the highest since its inception in 2009. Thanks to this, HMM achieved over KRW 1 trillion in operating profit in the first quarter alone.

The role of fiscal policy in HMM’s container ship ordering process was exquisite. It was the key factor that swiftly brought a company on the brink of exit back to normalcy.

The government announced in its economic policy direction for the second half of the year that it will designate semiconductors, batteries, vaccines, and other sectors as national strategic technologies and strengthen tax support. Additionally, the second supplementary budget for this year includes direct support for groups affected by the unexpected COVID-19 crisis. While all of these are important, there is an impression that the focus was placed only on immediately noticeable sectors.

The engine driving South Korea, which has relied on semiconductors and automobiles for decades, is better off being more diverse. The HMM case clearly showed what fiscal policy should do.

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