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South Korea sends another USD 5 billion to Hyundai Merchant Marine

Logistic News - Published on Fri, 12 Oct 2018

Image Source: Sea News
South Korea’s Hyundai Merchant Marine 011200 -2.92% is getting about USD 5 billion in additional state funding to finance a series of new orders for megaships as the company tries to compete with bigger Asian and European rivals in a difficult container shipping market. HMM, the country’s de facto flag carrier after the collapse of Hanjin Shipping Co. in 2016, will spend $2.8 billion to buy 20 large container vessels from South Korean shipbuilders. The rest of the money will likely be used to buy container terminals, according to people involved in the matter. The state intervention to prop up the struggling container ship operator reflects the willingness of Asian governments to stand behind national carriers that move billions worth of exports to Western markets and the local shipyards that build their vessels.

The financing was partly arranged by Korea Ocean Business Corp., a government body established in July to support a shipping sector that is considered critical to the country’s economy but which has been foundering since a global downturn in maritime business.

One person involved in the matter said tha t“Let’s say it’s a government investment. Korea must keep its place in global shipping. It’s a national interest issue.”

Korea’s struggling shipbuilders - Daewoo Shipbuilding & Marine Engineering Co. Samsung Heavy Industries Co. 010140 0.13% and Hyundai Heavy Industries Co. 009540 1.50% - will split a new order of 12 behemoths that can move 23,0000 containers each and another eight smaller vessels, according to the people familiar with the matter. A senior executive at one of the three yards, asking not to be named, “The order couldn’t have come at a better time. Orders have dried up and we are desperate for revenue to keep us going.”

HMM controls 1.8% of the global container capacity, while the world’s top five container operators hold a combined 65% share of the market. It narrowly escaped default last year with a USD 660 billion state bailout and has been losing money for years.

Similar bailout packages have been arranged over the years for the shipbuilders.

The state aid has infuriated European shipowners, who are asking the European Union to take punitive measures against Seoul to end what they call “unfair trade practices.”

Container ships, move USD 4 trillion worth of manufactured good a year, but industry operators have been weighed down by a glut of ships in the water and below-cost freight rates, pushing most companies into deep losses and some, like Hanjin, out of business.

The European Community Shipowners’ Association, a trade body representing most owners across Europe, said the bailouts distort markets and add to global overcapacity. “Part of this plan is also to secure stable cargoes for Korean-flagged vessels, which is a flag reservation of a particularly protectionist character,” said Martin Dorsman, ECSA’s, secretary-general.

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Posted By : Joykumar Irom on Fri, 12 Oct 2018
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