"Half Are Long-Term Contracts... Honghae Risk, Not Yet the Stage to Discuss Performance"

SCFI Drops After 9 Weeks... Air Freight Rates Also Stall
Impact on Shipping Companies' Earnings Still Uncertain

The blockage of the Suez Canal due to an attack by the Yemeni rebel group 'Houthi' has increased volatility in shipping freight rates. However, since a significant portion of the cargo is covered by pre-existing long-term contracts, the impact on annual performance is still considered limited.

According to industry sources on the 31st, the Shanghai Containerized Freight Index (SCFI), which indicates global maritime shipping freight levels, recorded 2179.09 this week. This is a drop of 60.52 points compared to the previous week. The continuous upward trend that started on November 24 last year (993.21) has halted after 9 weeks. This has led to forecasts that HMM's performance growth this year may slow down.

However, on the ground, there is a response that the impact of the freight rate surge will not be significant initially. Since many long-term freight contracts were made in advance, it is difficult for a short-term spike in freight rates to be directly reflected in revenue. Both overly optimistic and pessimistic forecasts are premature. An HMM official stated, "Since about half of the volume is covered by long-term contracts, not many customers actually used the sharply increased freight rates," adding, "The Suez Canal blockage has not reduced volume but rather extended delivery times, which caused freight rates to rise, so it is still difficult to easily predict performance." Another shipping industry official explained, "Freight rate cycles should be viewed long-term," and "Especially since February is usually an off-season when freight rates decline, it is difficult to interpret the current decline as unusual and forecast performance based on it."

It also appears that not many shipments have shifted to the air freight sector. Since the nature of air cargo and maritime cargo is different, unless the shipment is particularly urgent, demand is unlikely to move over. In fact, the Baltic Air Freight Index (BAI), which had risen due to the recent logistics crisis originating from the Red Sea, is also calming down quickly. The BAI, announced weekly, recorded 1972.0 as of the 29th. Although it rose by 119 points compared to the previous week, it is at a level similar to 1983 at the end of September last year. The sharp rise that reached the 2590s at the end of last year has clearly subsided. An air freight industry official explained, "The volume of cargo has not sharply increased on the ground yet," adding, "The freight index, which rose to 5000 in 2021 due to the impact of COVID-19, is now stabilizing around the 2000 level."

The securities industry also expects HMM's performance to be stable. Although it is not at the super-boom level seen during COVID-19, it is analyzed that the company can grow more steadily than last year. The market consensus for HMM's annual performance this year is revenue of 9.4409 trillion KRW and operating profit of 1.0547 trillion KRW. Compared to last year's estimated results, revenue is expected to increase by 12.0%, and operating profit by 84.9%.

[Image source=Yonhap News]

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