21-04-2017

S. Korea: Higher rates, fewer ships plague local shipping industry

Hanjin

Two months have passed since the collapse of Hanjin Shipping, once the country’s largest container line, and Korea’s logistics industry is still suffering from the fallout of higher freight rates and reduced vessel operation.

“The freight rate from Korea to Santos in Brazil rose from $50 to $2,000 per 20-foot container after Hanjin’s fall,” Tracy Kim, head of OFR Products at DHL Global Forwarding Korea, said Wednesday during an industry seminar hosted by the American Chamber of Commerce in Korea.

“Fewer vessels operate from the U.S. to Korea now, and this is causing a problem in receiving products on time, which is an important business factor for us,” said Edward Kim, vice president of Costco Korea. Around 62 percent of imported goods at Costo Korea are from the United States.

Kim expressed concern that depressed imports might push up the price of consumer goods as well as raw materials. This might in turn raise the price of Korea’s exports and deal a blow to the country’s competitiveness in the global market.

There was general consensus among panelists on the backdrop of Hanjin Shipping’s bankruptcy: a slogging global economy sparked heavy competition among the world’s shipping companies. Even as consumption slowed worldwide following the financial crisis in 2008, container lines continued to enlarge their fleets, banking on a swift recovery. But that revival never came, and the shipping firms with high capacity began to lower their freight rates in a race to the bottom.

While the panelists agreed this was a negative business environment, they had different opinions on what dealt Hanjin its fatal blow.

Kim Young-moo, vice president of the Korea Shipowners’ Association, blamed the government for failing to keep Hanjin afloat, instead focusing on withdrawing its bonds. “Hanjin declared bankruptcy because it failed to pay back 500 billion won [$440 million] in debt,” he said, “but the economic loss generated from its absence is an estimated 20 trillion won.”

Other panelists agreed that the Korean government was slow in responding to the logistics jam caused by Hanjin’s liquidity problem. “Our clients saw huge losses when ports refused to unload Hanjin’s cargo,” Tracy Kim said, adding that foreign clients eventually gave priority to competitors in neighboring China.

Skyrocketing freight rates for containers to Korea was another problem addressed by panelists.

Jun Jae-woo, a director at the Ministry of Oceans and Fisheries, had a less macabre view. “The situation may seem difficult at the moment, but in the long run, Hanjin’s fall will not have huge repercussions in the industry.”

Jun added that while freight rates have gone up since Hanjin’s collapse, he noted that the overheated competition between shippers had already pushed prices down to a point where companies couldn’t survive.

Kim In-hyeon, a maritime law professor at Korea University, stressed the importance of tackling the industry’s overcapacity issue. “We need to find a way to control the number of ships being built,” he said.

Source: Korea Joongang Daily

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