In global race for megaships, lines think size is everything

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Ever since Hanjin Shipping – once the largest shipping line in Korea – went bankrupt in 2016, Hyundai Merchant Marine, at No. 12, has been the only Korean carrier in the global top 20 by loading capacity. But the rapid expansion of global shipping giants through massive orders for megaships and mergers is complicating Hyundai’s plan to enter the top 10.

On June 4, Hyundai Merchant Marine (HMM) announced that it received orders for 20 mega container vessels with a loading capacity between 14,000 twenty-foot equivalent units (TEU) and 23,000 TEU from Korean shipbuilders. One TEU’s volume is about the same as one 20-foot container.

HMM’s announcement followed an order from Switzerland-based Mediterranean Shipping Company (MSC) for eleven container ships with 23,000 TEU in loading capacity from Korean shipbuilders, including Samsung Heavy Industries, late last year. At the time, the 23,000 TEU vessels were the largest ever ordered.

Shipping giants across the world are ordering and operating larger container ships than ever before. As of June, there were seven shipping carriers with over 1 million TEU in total loading capacity, according to market analyst Alphaliner. These carriers together have 73.2 percent of global market share.

In contrast, only four shipping lines possessed over 1 million TEU in cargo capacity in June 2016, and they only had a market share of 44.6 percent. The total loading capacity of the top seven shipping lines in the world has increased from 9.23 million TEU to 16.26 million TEU in the past two years.

“Megaships are leading global container ship orders,” said the Korea Maritime Institute in a report in May. “Out of the current orders for 342 ships across the world, 58.2 percent of the orders are for megaships that have a loading capacity of over 13,300 TEU.”

Experts believe that shipping lines are focusing on size-based competition because large ships can help lower transport costs.

Maersk Line, a Danish carrier, has the largest total loading capacity in the world.

“By using 18,000 TEU cargo ships since 2015, Maersk Line was able to lower shipping costs by 30 percent and prove the competitiveness of cargo ships in that size,” said Jon Joon-soo, a professor of marine finance at the Korea Maritime and Ocean University.

“[Korean shipping lines] can stand their ground by competing on size and saving on operating costs,” said Han Jong-khil, a professor of East Asian studies and logistics at Sungkyul University. “The competition over mega container ships is directly related to shipping lines’ survival.”

HMM’s recent vessel orders consist of twelve 23,000 TEU container ships as well as eight 14,000 TEU cargo ships. These will add 390,000 TEU in total cargo capacity, almost doubling HMM’s capacity from its current 410,000 TEU to 800,000 TEU.

HMM is hoping that the new additions will help it realize its ambitious goal of increasing its total cargo capacity to 1 million TEU by 2020, and eventually climb to No. 5 in the global rankings.

But domestic experts are concerned that HHM’s activities will not be enough to maintain an edge over competitors.

Taiwan’s Evergreen, the current world No. 7 shipper, recently ordered new ships with 480,000 TEU in accumulated cargo capacity. This will give it a total of 1.57 million TEU in fleet capacity by 2020. Fellow Taiwanese shipper Yang Ming Marine Transport, currently ranked at No. 9, also ordered 210,000 TEU of new ships to reach an expected total capacity 850,000 TEU.

Mergers between large shipping lines are also a rising trend that threatens to keep HMM from rising higher in the ranks.

German shipper Hapag-Lloyd’s merger with the United Arab Shipping Company in 2017 propelled it from world No. 6 to No. 5 after it acquired over 540,000 TEU in new cargo capacity. Last year, three of Japan’s largest shipping companies formed the joint venture Ocean Network Express (ONE) to become the world’s sixth-largest shipping line, despite only beginning operations in April.

China’s COSCO Shipping is also completing the paperwork necessary to take over No. 8 OOCL, a Hong Kong-based company. The merger is expected to allow COSCO, currently No. 4, to replace France’s CMA CGM as No. 3 by 2020.

Some experts suggest that domestic shipping companies should also consider uniting their container shipping operations, with HMM at its core.

“Korea needs its own ONE team,” said Han. “The Korea Ocean Business Corporation should focus its resources on supporting the joint venture.”

If domestic shipping lines don’t do anything to increase their competitiveness, the entire Korean economy could suffer, experts say.

“If an oligopolistic structure takes hold in the global shipping industry, with Korean companies out of the picture, shipping costs will rise 20 to 30 percent for us,” said Jun. “This will lead Korean businesses to lose competitiveness, as our economy is heavily dependent upon trade.”
Source: Korea Joongang Daily

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