- Announces 「Plans to Strengthen Competitiveness of Shipping Industry in Response to Market Changes」, together with stakeholder ministries -

 

□ Creating safety valves to support the management of national shipping businesses, including a crisis response fund worth up to KRW 1 trillion □ Public sourcing of 50 vessels by 2026, to be leased to national shipping companies (KRW 1.7 trillion) □ Special customized support for small and medium shipping firms that are vulnerable to crises (KRW 300 billion) □ Replace the Shanghai freight index → announce the establishment of the Busan Port containerized freight index (weekly) □ Establish decarbonized routes, support eco-friendly vessel pilot routes ⇒ Lead global green shipping innovation □ Deliver revenue of KRW 58 trillion (KRW 50 trillion in 2021), oceanic cargo capacity of 1.3 million TEU (1.05 million TEU in 2022), and a dominant fleet of 120 million tons (93 million tons in 2021) by 2027

 

 The Ministry of Oceans and Fisheries (Minister CHO, Seung-Hwan) drafted its Plans to Strengthen Competitiveness of the Shipping Industry in Response to Market Changes together with relevant ministries and unveiled it on 4th November (Friday) at the Emergency Ministerial Meeting on Economic Affairs to support ‘the shipping sector’s leap forward to become stronger in times of crisis’ amidst this year’s uncertain market conditions, which include rapidly dropping freight rates.

 

 The shipping balance, which makes up about 31% of Korea’s service balance (as of 2021), recorded deficits from 2016 through 2020 due to the impacts from the bankruptcy of Hanjin Shipping and recession in the shipping market, before turning around in 2021. Since the shipping balance is largely impacted by the changes in international freight fares, the consequent reductions in the surplus appear inevitable. Moreover, the impacts on the competitiveness of Korea’s shipping cannot be excluded if the downward trend of freight rates continues.

 

* Shipping balance (USD, 100 million) : (‘16)△13.2 → (’17)△50.1 → (’18)△30.4 → (’19)△21.6 → (’20)△12.5 → (’21)110.4

 

 Freight fares surged to unusual levels during the pandemic for both containerized and dry cargo vessels due to demand rises in consumer goods and the global logistics crisis in major ports around the world. Starting this year, rates plunged following the global economic slowdown and the normalization of ports.

 

* Container fares(SCFI) : (2019)811→(2020)1,265→(2021)3,792→(Jan 2022)5,110→(Oct 2022)1,698
   Dry cargo fares(BDI) : (2019)1,354→(2020)1,063→(2021)2,943→(Jan 2022)2,285→(Oct 2022)1,534

 

 Furthermore, with next year’s increase in the supply of ships (8.1%) expected to surpass the increase in traffic volume (2.5%) and the slower growth in cargo volume headed for North America and Europe are likely to lower overall container vessel freight fares for the near future. Dry cargo fares are also expected to continue the decreasing trend due to reduced demand for commodities, the repeated production halts in China and the Russia-Ukraine War.

 

 Despite the current drops in rates, Korean shipping companies are expected to deliver historically high sales performance this year, backed by the high rates in H1. Moreover, Korean shipping firms are assumed to possess sufficient capacity to respond to weak market conditions as they have accumulated cash assets during the boom of the last 3 years.

 

* Operating profit of national container shipping companies in H1 2022: (2 far ocean shipping firms) 61.2%, (top 8 operating on Asian region routes) 35.5%

 

 In particular, far ocean shipping firms, including HMM, have improved their cost efficiency by nearly doubling their cargo capacity during the last 3 years, and the global operation stabilization led by the top 3 alliances is assessed to pose little risk of a crisis. However, small and medium shipping firms that mainly operate regional routes in Asia, such as to China, Japan, and Southeast Asia, may face challenges if the fares continue to drop due to stronger competition.

 

 Integrating all the aforementioned factors into a single perspective, there is little possibility of a business management crisis for Korean shipping firms in the near future under the given circumstances. However, as fares continue to plunge rapidly, the Korean government has determined that it shall continue to closely monitor market conditions and to prepare proactive actions to boost the competitiveness of the sector.

 

 Back in 2017, Korea experienced a logistics crisis relating to exports and imports as the nation’s logistics network was lost in the wake of the bankruptcy of Hanjin Shipping, the largest in Korea and 7th largest in the world at the time. Thus, the Korean government plans to strengthen support to prevent any repeat of the Hanjin crisis and to ensure strong support for Korea’s imports and exports.

The new governmental plan consists of actions to ❶build safety valves to ensure business management of national shipping firms, ❷improve monitoring and responses to shipping market changes, ❸expand the growth foundation for the shipping sector, and ❹lead the green and digital transformation.

 

❶ Building Safety Valves for National Shipping Companies

 

 The Korean government will first establish security valves worth KRW 3 trillion to ensure the management of national shipping firms in preparation for crises. ▲ Create a crisis response fund of KRW 500 billion, and up to KRW 1 trillion based on the demands of shipping firms, to support restructuring or M&A of high-risk shipping firms and to quickly respond to various external changes, such as environmental regulations. ▲ Decrease the investment and guarantee ratios for small and medium shipping firms that lack the financial capacity (KRW 250 billion), and allocate an emergency business management stability fund (KRW 50 billion) to quickly provide support for shipping firms during liquidity crises.

 

▲ In addition, a public shipping business will be rolled out by 2026, through which the Korea Ocean Business Corporation will secure up to 50 vessels to be leased out to national shipping firms. (KRW 1.7 trillion) ▲ Moreover, capital increases will continue for the Korea Ocean Business Corporation to grow the capacity to support national shipping firms during slow markets, and the efficiency of the sector is to be improved by forming a voluntary K-Alliance among small and medium shipping firms operating Asian routes to improve collaboration and adjust duplicative routes.

 

❷ Improve Monitoring and Responses to Shipping Market Changes

 

 Moreover, the Korean government will establish a crisis response framework for each shipping company group, which is categorized by ship types, routes, and sizes, as well as by differentiating the impacts from economic and market changes for each group to enhance crisis detection capacity in advance. The government also plans to enhance customized support measures during crises based on impact analysis, such as issuing early warnings when necessary and redesigning financial and policy support.

 

 A Korean containerized freight rate index will be developed and announced every week starting this month to provide freight rate information more suitable for Korea by replacing the Shanghai Containerized Freight Index, an index of fares for cargo that depart from Shanghai. With the new index, Korean shipping and import-export companies can more accurately grasp actual freight rates, which is expected to ensure more equitable and stable international trade logistics.

 

❸ Expand the Growth Foundation for the Shipping Sector

 

 The Korean government is also focusing on measures to secure the medium- to long-term competitiveness of the shipping sector. ▲ Existing policies will be improved, such as by expanding the scope for previous certification programs for outstanding ship․cargo operators to ensure an autonomous, mutually collaborative ecosystem for operators, and by supporting long-term logistics contracts between national shipping firms and cargo associations of various sectors to provide a stable export base for small cargo operators. This alone is expected to reduce logistics costs by up to 30% for small and medium cargo operators. ▲ For major strategic materials, such as liquefied natural gas (LNG), the ratio of national shipping companies in the shipping mix will be increased in consideration of economics and supply stability.

 

▲ Moreover, as production demand for new eco-friendly vessel construction is expected to spike following the enforcement of a new environmental regulation on existing ships from next year, financing for ships will be diversified by promoting additional inducements for private ship-building investments. ▲ To secure a stable supply network for national shipping and export firms, investments will be increased in joint logistics centers at key hub ports and terminals overseas. ▲ Plans are also expected to resolve the issue of crew recruitment, an area that is currently experiencing difficulties in supply due to ageing and the avoidance of long-term boarding by younger generations.

 

❹ Lead the Green and Digital Transformation

 

 Lastly, the Korean government will actively support the green and digital transformation of the shipping sector in line with the ever-changing global logistics environment, triggered by stricter environmental regulations and the digital revolution. ▲ The government will prepare plans to commercialize future fuels in collaboration with the International Maritime Organization (IMO) and the development and commercialization of core technologies in low-carbon and carbon-free eco-friendly vessels. ▲ Moreover, the government plans to lead global green shipping innovation by consequently converting 528 public and private ships into eco-friendly vessels and by declaring its intention to decarbonize routes.

 

▲ Furthermore, the Korean government will prepare the legal foundations to facilitate the development and commercialization of autonomous ships and support the digital transformation of the shipping sector by introducing a fully automated port at Gwangyang Port by 2026.

 

 Through these measures, the Korean government plans to support the transformation of the shipping sector with stronger competitiveness and resilience by securing shipping revenue of KRW 58 trillion, a national fleet of 120 million tons, and an oceanic cargo capacity of 1.3 million TEUs by 2027.

 

 Minister Cho Seung-Hwan of Oceans and Fisheries explained, “while the shipping sector has boomed over the last three years, backed by the unusual increase in freight rates, the external conditions have changed drastically, with freight rates dropping by 67% just in 2022.” He added, “while the current situation cannot be declared a crisis, the Ministry plans to establish proactive policies to prepare for future risks and to ensure strong support for the shipping industry in Korea’s export and import logistics.”