South Korean’s new Minister of Ocean and Fisheries, Kim Young-suk has declared he does not see any immediate benefit for the merger between both South Korean carriers Hyundai Merchant Marine and Hanjin Shipping.
Kim Youn-suk added he believes that in order to be competitive in the international market, finance is required to allow both shipping companies to acquire mega-ships. He continued by stating “There are many ways of leasing ships, such as through bareboat charter following the establishment of funds by Export-Import Bank of Korea and Korea Trade Insurance Corporation, for example. I have never believed that the two companies should merge.”
The new Minister said Hanjin and Hyundai Merchant Marine, the country’s two biggest shipping companies, need ultra-large container ships if they are to be competitive.
Container lines are upsizing vessels in search of better unit costs through fuel savings and economies of scale, with the largest ship on order currently at 21,000 TEUs. The biggest container ships operated by Hanjin and HMM are around 13,000 TEUs.
But the race for large vessels has helped to flood the industry with surplus capacity, especially on the Asia-Europe trade where most of the mega ships are being deployed. Freight rates have tumbled as a result, hitting liner profitability.
If any merger were to go ahead between the two South Korean liners, it would have a large impact on the alliances the two are already part of and create ripples through the wider supply chain.
Hyundai previously denied claims that it was entering into a merger with Hanjin Shipping after it successfully completed a more than US$ 200 million convertible bond to restore liquidity, yet it remains a gamble in an uncertain market as to whether liners are stronger in mergers or as semi-independent entities in alliances.
