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Logistics challenges

S. Korea's shipping firms grapple with container shortages

Nov 12, 2020 (Gmt+09:00)

Growing shipping volumes and surging sea freight rates are wreaking havoc on South Korea's shipping companies, reeling from a dire shortage of container boxes amid rising container prices.

HMM Co., South Korea’s largest container carrier, said on Nov. 11 that it will spend $205 million, or 14% of its equity capital, to increase its purchase of container boxes by the end of next June.

Formerly known as Hyundai Merchant Marine, HMM will lease and then later buy 43,000 dry containers and 1,200 refrigerated containers, according to its regulatory filing.

It did not disclose the price of the containers. But the industry estimates that one 40-foot equivalent unit (FEU) container will cost around $3,000, almost double the $1,500-1,800 prices shipping companies paid three to four years ago.

Given that the world’s largest container ship with a 24,000 FEU capacity is worth 170 billion won ($152 million), the per-FEU price is higher than the ship that carries the boxes.

Rebounding global trade and growth in e-commerce business in an extended pandemic era pushed sea freight charges to a record high level last week, prompting shippers to ramp up cargo handling capacity and expand their shipping routes amid growing container demand.

The Shanghai Containerized Freight Index (SCFI), a benchmark of global freight rates, spiked to a record high of 1,664.56 last Friday. The sea freight rate on the US route has risen threefold from a year earlier to a record $3,871 per FEU in container shipping.

Earlier this year, HMM launched the first of twelve 24,000 FEU container ships it ordered from three Korean shipyards in 2018. It has also expanded operations to the US and the Middle East routes from April this year.

HMM's 24,000 FEU container ship launched in April 2020

A slow economic recovery in the US following the coronavirus respread is also disrupting the seaborne logistics market, aggravating container shortages due to lower container retrieval rates in the US.

“Quite often, a cargo ship departing China with a full shipment comes back more than half empty,” said a shipping industry source.

LOSING OUT TO CHINESE CONTAINER PRODUCERS

The absence of domestic shipping container manufacturers has contributed to the supply shortages.
 
Until the 1990s, South Korean companies, including Hyundai Mobis Co., Jindo Co. and Daesung Industrial Co., led the global container market. But they have lost ground to Chinese competitors, including China International Marine Containers Co., Singamas and CXIC, armed with cheap labor costs, since the beginning of the 2000s. The Chinese manufacturers now command 90% of the global container market.

Hyundai Mobis and Jindo pulled out of the market in 2000 and 2001, respectively, as Korea's last container manufacturers.

Despite rising shipping volumes, container shortages and higher freight charges will continue to weigh on South Korean exporters, already under pressure from the strengthening Korean currency. A stronger won hurts Korean exporters' price competitiveness in global markets.

“The government's efforts to expand shipping operations on the US route will not be helpful, unless we have secured enough container boxes,” said another shipping industry source.

Write to Man-Su Choe at bebop@hankyung.com

Yeonhee Kim edited this article.

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