Expectations for Stabilization of Domestic Shipping Industry Amid Challenges in Fundraising and Eco-Friendly Transition

Harim, HMM Selected as Preferred Negotiators
Domestic Shipping Industry Competitiveness Declines Amid Prolonged Recession
If Deal Concludes in First Half of Next Year, New Owner for First Time in 8 Years
Long-Term Investment Perspective Crucial in Industry Cycle

With the Harim Group consortium, led by Pan Ocean, being selected as the preferred bidder for the sale of HMM, the largest container shipping company in South Korea, the domestic shipping industry crisis that has persisted for several years has entered a stabilization phase.

However, since shipping is a crucial infrastructure industry for South Korea, which focuses on exports, and given the significant fluctuations depending on market conditions, there are calls to devise management strategies from a long-term perspective. In particular, as a smaller company is set to acquire a larger one, it has become important to prepare financing plans and to alleviate the unsettled atmosphere both inside and outside the company.

HMM Ultra-large Container Ship
Photo by HMM

South Korea ranked around 5th globally in terms of shipping capacity in 2010, but due to reduced investments amid economic downturns and the bankruptcy of Hanjin Shipping, it fell to 7th place in 2017. Subsequently, during the COVID-19 period, cargo volume increased, pushing the ranking up to 6th last year. HMM is the number one domestic and 8th largest global container shipping company. Since the long-term shipping industry downturn that hit in the 2010s, HMM received public funds in 2013 and has been under the management of the Korea Development Bank.

As conditions did not improve, the creditor group eventually restructured debt and converted equity in 2016, making the Korea Development Bank the largest shareholder. To enhance export competitiveness, the government and the shipping industry established the Korea Ocean Business Corporation, which also helped HMM order ultra-large vessels.

The domestic shipping industry, which had been steadily posting losses, revived due to COVID-19. HMM also returned to profitability in 2020 and recorded sales of 18.5868 trillion won and operating profit of 9.9455 trillion won last year. The increase in cargo volume due to COVID-19 stimulus measures and the disruption of major shipping routes caused freight rates to surge significantly. As HMM’s valuation rose, the creditor group, including the Korea Development Bank and the Korea Ocean Business Corporation, began the sale process in July this year and selected a preferred bidder within about five months. The seller plans to complete the transaction by the first half of next year.

Although the new owner of HMM has been identified, there are still considerable challenges ahead. Since the Harim Group and JKL consortium’s financial situation is not abundant, they will need to secure external funds or utilize company profits, which is expected to involve a lengthy negotiation process. The controversy over the request to defer the conversion of perpetual bonds into shares during the selection of the preferred bidder also stems from this background.

The recent competition among global shipping companies to expand their scale has shifted toward eco-friendly initiatives, which is also a burden. Since shipping operates worldwide, it is sensitive to environmental regulations. Amid growing demands from shippers, especially in developed countries, for vessels with lower carbon emissions, new technologies such as sustainable fuels must also be adopted.

The brief boom is already showing signs of decline. The industry anticipates a downturn due to economic recession, weak demand caused by interest rate hikes, and increased vessel supply. The Shanghai Containerized Freight Index stood at 1093.5 this week, down to about one-fifth of the peak level seen in early last year.

A representative from the shipping industry said, "Given their experience operating bulk carriers, they are expected to have a high understanding of the shipping industry overall," adding, "Considering the long-term nature of the industry, they should devise long-term investment plans and build resilience to prepare for downturns."

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