Shipping Freight Rates Plunge... HMM Earnings Outlook Also 'Bleak'

SCFI Plunge Causes Earnings Decline
Fell from 5109.06 Peak in January to 1123.29 This Year

[Asia Economy Reporter Yoo Hyun-seok] The rapidly declining shipping freight index is causing HMM's earnings forecasts to plummet as well. Additionally, concerns over a global economic recession next year, coupled with a decrease in global cargo volume and an increase in vessels, are expected to further intensify the pressure on earnings.

On the 20th, securities firms projected HMM's Q4 revenue and operating profit for this year at 3.5202 trillion KRW and 1.3773 trillion KRW, respectively. These figures represent decreases of 20.77% and 48.96% compared to the same period last year.

HMM's Q4 earnings forecasts have been rapidly declining over time. Just three months ago, revenue was expected to be 4.0309 trillion KRW with an operating profit of 2.0834 trillion KRW, but one month ago, these figures sharply dropped to 3.5749 trillion KRW in revenue and 1.434 trillion KRW in operating profit. Now, the forecast has fallen to the 3.5 trillion KRW range.

The cause of the Q4 earnings deterioration is the sharp decline in the Shanghai Containerized Freight Index (SCFI). The SCFI surpassed the 1000 mark in June 2020, reached 3000 in 2021, and after exceeding 4000 in July of that year, it peaked at 5109.60 in January this year. This was due to global logistics being blocked for reasons such as quarantine measures amid COVID-19. However, since then, it has continuously declined, falling to 1123.29 as of the 16th, marking a drop over two years and four months.

The outlook is even more concerning. Due to the effects of the ‘three highs’ phenomenon?high exchange rates, high interest rates, and high inflation?global cargo volume may stagnate. Furthermore, global vessel capacity (cargo loading capacity) is expected to increase next year compared to this year. Since supply will exceed demand, freight rates are expected to decline further.

Clarkson Research, a UK-based shipbuilding and shipping market analysis firm, forecasted that this year's cargo volume will decrease by 0.9% from last year to 260 million TEU (1 TEU equals one 20-foot container), and next year it will increase by only 1.6% to 294 million TEU. On the other hand, vessel capacity is expected to rise by 3.65% next year to 2.5453 million TEU compared to this year. Since vessel capacity is increasing more than cargo volume, freight rates may fall further. Shin Young Securities researcher Eom Kyung-ah explained, "Considering the upcoming supply deliveries and the demand decline that has just begun at the tail end of COVID-19, the possibility of a reversal to strong freight rates is low from any perspective."

As a result, securities firms are also lowering their earnings forecasts for HMM next year. They expect HMM to record revenue of 10.999 trillion KRW and operating profit of 2.8074 trillion KRW next year. These figures represent sharp decreases of 20.99% and 55.34%, respectively, compared to the forecasts from three months ago, which were 13.9208 trillion KRW in revenue and 6.2856 trillion KRW in operating profit.

However, there is also a forecast that HMM may be able to defend profitability due to its high proportion of ultra-large vessels, which have high profitability. An industry insider said, "HMM is known to have the highest proportion of ultra-large vessels among global shipping companies," adding, "Because of this, it is expected that they can somewhat defend against earnings deterioration."

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