(News Focus) S. Korean shippers in choppy waters

SEOUL, March 10 (Yonhap) -- South Korea's shipping companies are struggling as
the global economic downturn has hit the industry hard and shipping rates have
fallen sharply, market watchers said Tuesday.

South Korean exports plunged 31.4 percent in the first two months of this year,
as companies slashed production in anticipation of further weak demand for their
goods and consumers worldwide reduced purchases of goods in the face of the
global slump.
"The shipping industry is the first sector hit by a global economic slump," said
Kim Hyung-yeol, an analyst at NH Investment & Securities. "Global recession saps
cargo demand, while a surge of new-ship deliveries raises capacity."
Last week, Samsun Logix Corp., the country's seventh-largest shipping line, was
placed under court receivership after facing a credit crunch. The shipper's
business performance was not bad last year. It logged 136 billion won in
operating income on sales of 2.4 trillion won, although it suffered a net loss of
36 billion won due to heavy financial costs.
In the past few years, the country's shipping lines such as Hanjin Shipping Co.
had enjoyed a heyday on rising shipping demand. For one, the Baltic Dry Index -
an indicator of shipping charges for dry cargo ships - surged to a record of
11,793 in May last year. But after falling to as low as 663 in December, it now
hovers around the 2,000 level.
"Although the BDI recovered to some degree, it is unlikely to continue its upward
trend," Kim said adding that shipping rates may fall again down the road.
Watchers said one of the reasons that drive some shippers into a corner is a
common business practice of the sector. Usually, shipping companies charter out
some of their vessels to other shippers. But in the current uncertain
macroeconomic backdrop, it is not assured that their charter counterparties may
pay the agreed rates. Also, a chartered-out ships are re-rented to other shipping
lines, which increases the chances of a shipper facing counterparty risk.
"Renting out the ships is not a real problem. More important is who is renting
them," an official at a local shipping company said, asking not to be named. "If
a charterer fails to make payments for it, it could lead to a chain of
bankruptcies."
In an uncertain market, shippers also run the risk of contract renegotiations as
their charter counterparties may struggle to make payments in the wake of the
global economic crisis.
"They (charterers) want to cut the rates to a level that we can not accept," the
official said.
Last week, South Korea announced that it would encourage state-run companies to
buy vessels from local shipping lines to help them better tackle slumping trade
volume and plunging ship prices.
Indeed, several shippers are seeking to sell vessels at an unreasonably low price
to secure cash and repay debts.
"It is positive for the shipping industry as the measures could help reduce the
risk of several shippers facing default," said Song Jae-hak, an analyst at Woori
Investment & Securities.
"But the measures would not be enough to alleviate the sector's problem because
of falling exports and oversupply of new ships," he said.
The Korea Shipowners' Association, which represents 164 shipping companies, also
said in November it plans to set up an asset management company to buy vessels
from members.
According to the association, the country's 177 shipping companies own around 820
vessels. Industry source estimates that 150 shippers are heavily dependent on the
top 20 companies that rent ships.
sam@yna.co.kr
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