The crisis has now gotten a solid hold on the Korean carriers, whose poor finances risk impacting their global expansion plans, says Alphaliner in a new analysis. Since the beginning of the year the stock value of the two biggest carriers Hanjin Shipping and Hyundai Merchant Marine has been trickling down, having declined by USD 2.4 billion so far, while the third carrier, STX Pan Ocean, has been deferring payments since June and is in the process of selling the remainder of its container fleet.
"The cash-strapped Korean companies have seen their debt load spiral out of control while their equity base has been eroded due to persistent losses in their shipping operations even as they continued to take on newbuildings ordered both before and after the Lehman crisis in late 2008," says Alphaliner.
Shares in major decline
On Monday Hanjin's shares decreased by 14 percent, thus reaching the lowest point since the carrier was split from parent company Hanjin Shipping Holdings back in December 2009. A clear sign of the challenges faced by Korean shipping companies, says Alphaliner.
Furthermore, on November 15th Hanjin presented its 11th consecutive interim report with a negative result, a deficit of USD 285 million in 3rd quarter 2013. The poor results led CEO Y. M. Kim to resign from his position on November 11th.
The biggest and most urgent challenge for Hanjin Shipping, according to Alphaliner, is the company's weak balance, with loans for a total of USD 8 billion versus a liquidity of just USD 872 million.
Meanwhile, the carrier has bond loans for USD 1.07 billion that will mature in 2014 and 2015, a fact that made Hanjin take an emergency loan of USD 150 million from major shareholder Korean Airlines last month, plus the carrier is considering the further divestment of terminal stakes.
But the shipping company still harbors long-term plans, and Alphaliner notes that the carrier has ten newbuildings in the pipeline, including 7 10,000 teu ships on long-term charter contracts from Seaspan, set for delivery in March next year. And it does not stop there.
"Despite its current precarious position, Hanjin has been linked to additional newbuilding orders. Broker reports suggest that a Turkish owner is finalizing an order for 4 x 9,200 teu at Hanjin H.I. against a long term charter to Hanjin Shipping for 8 years with delivery at the end of 2015 and the beginning of 2016," says Alphaliner in the analysis.
Plenty of newbuildings
The strategy supports the attempt to reclaim market shares, where Hanjin peaked in 1997 with 4.9 percent, and in 2003 the shipping company launched an enormous newbuilding strategy by placing an order for 35 ships ranging in size from 6,000 teu to 13,100 teu.
However, the carrier has had difficulties absorbing this giant fleet, which forced Hanjin to move its original focus on th east-west routes to north-south instead, where the company established new services in 2010. But the carrier entered the routes in a period of heavy competition, a fact that has sent the rates spiraling down during the last three years.
In light of the Korean container carriers' current situation, a consolidation could be an option, but there have been no signs indicating this solution so far, and Alphaliner does not expect it to happen anytime soon:
"Apart from the fierce rivalries amongst the Korean carriers, neither Hanjin Shipping nor Hyundai M.M. are in a position to acquire other carriers at this point, as both groups face their own liquidity issues while the smaller Korean carriers (KMTC, Heung-A, Sinokor, Nam Sung and CK Line) are focused only on short-sea intra-Asia trades and are not attractive acquisition targets," says Alphaliner.