A decision to focus on container shipping may have affected Hanjin Shipping’s efforts to improve its liquidity as the sector remains stagnated, an analyst has said.
True Friend Korea Investment & Securities analyst Yun Hee-do said that while the plunge in bunker prices had eased the burden on Hanjin Shipping, South Korea’s biggest container shipping company, somewhat, it would not enjoy substantial profits.
The company said on 2 October that it was considering selling its stake in H-Line Shipping. The sale could secure KRW150 billion (USD139.35 million).
Media reports claim Hanjin Shipping aims to raise KRW700 billion. In June 2014, it spun off its dry bulk and LNG shipping businesses for USD298 million. The divested units were combined under a new entity, H-Line Shipping, in which Hanjin retained a 22.2% stake and private equity firm Hahn & Company bought a 77.8% stake.
Yun said Hanjin Shipping would experience disappointing profit growth considering the oil price decline. “While lower crude prices have eased the fuel cost burden, profit growth has been limited due to lower container freight rates,” said Yun.
IHS Maritime Sea-web.com data shows that, global deliveries of container ships for 2015 are expected to total 250 ships, representing 1,860,583 teu, of which 69 are ultra large container ships (ULCSs), including 10 vessels from Taiwanese carrier Yang Ming alone.
This compares with the delivery of 206 ships totalling 1,519,343 teu in 2014, including 60 ULCSs, suggesting fleet growth of more than 22%. However, trade growth has settled at single digits.
Global container ship trade growth has averaged 7.3%/year over the past five years. Trade grew by 6.2% in 2014 and is expected to grow a further 6.4% in 2015 to more than 180 million teu.
Yun said, “Amid the supply glut that has persisted for several years, consignors have the bargaining power in freight rate negotiations as shipping demand has fallen short of earlier expectations and the number of ships has surged. As such, shipping companies will not be able to benefit fully from the lower crude prices, but will have to share these benefits with consignors.”
While fuel cost savings should reach KRW360 billion this year, Yun forecasts a net profit of just KRW83 billion as rates have declined substantially. Specifically, 2Q15 average container rates fell 14% year-on-year while the Shanghai Containerized Freight Index (SCFI) plunged 36.2% y/y over this period.
Yun concluded, “As the SCFI is expected to decline another 37% year-on-year in 3Q15, Hanjin Shipping’s fares should also fall significantly as supply growth continues to outstrip demand and as a few megacarriers that are generating profits compete aggressively to secure more volume backed by robust unit cost competitiveness.”