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Wednesday, September 30th, 2020

S. Korea: Ill-advised Restructuring in Shipping Sector to Weaken Industry Competitiveness

by April 27, 2017 General

Concerns that an ill-advised restructuring of the shipping industry without medium and long term strategies will end up weakening the competitiveness of related industries are becoming reality.

According to shipping industry sources on April 25, Hyundai Merchant Marine Co. (HMM) sold its 40 percent plus one share in Hyundai Pusan New Port Terminal Co. to the Port of Singapore Authority (PSA) as part of its self-rescue plan in March last year when the shipping industry carried out restructuring in earnest. In the process, the sales agreement included “poisonous clauses” that are unilaterally favorable to PSA.

HMM, the then largest shareholder of Pusan New Port Terminal with a 50 percent plus one share, sold its 40 percent plus one share in the port terminal at 80 billion won (US$70.77 million), yielding to the pressure of financial authorities and creditors. Under the conditions of the sale, HMM has to process 700,000 twenty foot equivalent unit (TEU) of cargoes in Hyundai Pusan Newport Terminal annually and use only Pusan New Port Terminal when processing additional cargoes.

In addition, PSA said it would raise its terminal service fees by 3 percent every year until 2023 and HMM accepted the request. The rate of transshipment per TEU set by PSA was two times higher than China’s Shanghai port and four times higher than the Qingdao port. PSA also banned HMM from taking over other terminals for three years even when it wants to in order to avoid unfavorable conditions.

HMM handled a total of 1.57 million TEU at the Busan port in 2013 and it is also expected to process more cargoes at the port this year. An official from HMM said, “When the company handles 1.5 million TEU at the Busan port this year, it will face up to 33.1 billion won (US$29.28 million) of additional costs. If PSA sticks to the current high level of rates, HMM might have to use overseas terminals to cut down costs.”

The more HMM process cargoes at the Busan port, the more losses it has to shoulder. HMM, which needs to make profits, has no choice but to handle its transshipment cargoes at other ports, including China, though it may face public criticism.

Some said that the government’s coercive and inconsiderate restructuring plans to sell lucrative assets to secure funds for cash-strapped companies while overlooking their competitiveness brought about such result. An official from the industry said, “As all the cards of HMM were exposed to its opponent, the company’s negotiating power also diminished. The port authorities should mediate the conflicts between HMM and PSA from a broad point of view.”
Source: Business Korea