"3Q Earnings Hit Bottom"... Glovis Renews Contract with Higher Car Carrier Freight Rates

Glovis, Car Carrier Freight Contract Renewal Season Arrives
Negotiations for Some Non-Affiliated Volume Near Completion
Industry Expects Freight Rate Increase Reflecting Market Conditions
Renewal Rate Hike to Be Reflected in Q4... Positive Signal for Q4 Performance Improvement

Hyundai Glovis is pushing for contract renewals with some clients by raising the freight rates for pure car and truck carriers (PCTC). Although PCTC freight rates have risen rapidly since 2021, Hyundai Glovis, which mainly signed long-term contracts, did not fully benefit from the rate increases. Simply put, they provided services at prices lower than the market rate during the contract period. As the contract renewal season approaches, attention is focused on the timing and extent of Hyundai Glovis's freight rate hikes. The effect of contract renewals reflecting the PCTC freight rate increase is expected to appear as improved earnings in the fourth quarter.

According to a report compiled from interviews on the 7th, Hyundai Glovis revealed this information during an investor relations meeting (NDR) held last week for domestic institutional investors. Hyundai Glovis stated, “From the fourth quarter, we are negotiating with clients to reflect market conditions and cost increases in the freight rates, and negotiations with some non-affiliated companies are already in the final stages.”

So far, raising PCTC freight rates has been identified as a key task for Hyundai Glovis’s long-term earnings improvement. While global finished vehicle maritime transport increased and PCTC carrier freight rates rose more than threefold compared to 2021, Hyundai Glovis, which mainly signed long-term contracts of two to three years, barely benefited from the sharp market price surge.

According to Clarkson Research data, as of the end of October this year, the daily charter rate for a 6,500 CEU (1 CEU is the space to carry one car) class pure car and truck carrier was $115,000, more than three times higher than the 2021 average of $35,000.

However, as the contract renewal period for major clients approaches in November this year, Hyundai Glovis is renegotiating contracts to reflect current market prices. Since overall market freight rates have risen, Hyundai Glovis’s freight rate increase was an expected step. However, the industry is closely watching the speed of contract negotiations and the extent of the rate hikes as measures of profitability improvement.

During this investor relations meeting, Hyundai Glovis announced that the PCTC freight rate renewals for some non-affiliated companies are in the final stages. The industry expects freight rates to be set two to three times higher than before, reflecting current market conditions.

They also added that they are negotiating contract renewals at increased freight rates for overseas factory PCTC shipments of Hyundai Motor and Kia, which renew contracts annually. If the renewals are successful, the freight rate increases will be applied retroactively from shipments made in October.

The industry expects that with this freight rate increase, Hyundai Glovis’s PCTC business revenue, which bottomed out in the third quarter, will rise to around 800 billion KRW per quarter starting in the fourth quarter. According to Hyundai Glovis’s third-quarter earnings report, PCTC business revenue for the third quarter of this year was 768.1 billion KRW, down 12% year-on-year. Of this revenue, 53% was related to affiliated companies and 47% to non-affiliated companies.

To expand PCTC revenue, Hyundai Glovis will also introduce 12 new chartered vessels. This is to secure additional shipping capacity by September 2027 and respond swiftly to market changes. The newly introduced PCTCs will be 10,800 CEU class. Converted to the existing 6,500 CEU class, this means about 20 additional vessels’ worth of shipping capacity will be added.

Kim Young-ho, a researcher at Samsung Securities, said, “In the past, Hyundai Glovis’s business strategy was to minimize profit volatility caused by short-term market conditions, but now they are preparing to change. They are trying changes such as increasing vessels and aggressively negotiating freight rates to benefit from the PCTC business, which is expected to have steady demand for the time being.”

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