Korean shipping lines promised billions in state support as profits fade
South Korea’s minister for oceans and fisheries has assured the country’s container shipping companies his ...
Donghae Port Credit POSCO
South Korean dry bulk vessel operator SW Shipping will become the newest entrant to container shipping next year, operating a shortsea service to Vietnam from South Korea.
SW CEO Kang Seong-hun signed a memorandum of understanding with the government of Gangwon province, Donghae Port and Donghae Regional Office of Oceans and Fisheries to launch the service between Donghae and Ho Chi Minh City next June.
And in 2023, the line intends to start a service connecting Donghae with the Russian ports of Vostochny and Vanino.
Enticed by the record profits in the container segment, SW approached the Donghae regional office in March to discuss establishing a service route. Calculations show that shippers and receivers in Donghae can save 20% on inland transport costs if they can ship cargo directly to and from Vietnam.
SW wants to gain experience in container shipping by operating the shortsea services for a couple of years before venturing into the transpacific trades, possibly in 2030.
SW achieved a net profit of $3.28m in 2020 and plans to invest approximately $241m in container shipping, the purchase of two second-hand 1,000 teu ships to launch the service to Vietnam high on its shopping list.
With support from state-controlled ship finance provider Korea Ocean Business Corp, SW also plans to procure 4,000 containers, either through purchases or long-term leases and aims to attract cargo from Gangwon and the Seoul metropolitan area, which account for 70% of the 600,000 teu of goods exported from South Korea to Vietnam.
Freight analytics consultancy Xeneta’s chief analyst, Peter Sand, told The Loadstar new entrants faced several challenges.
“The most important is being able to actually deliver the service – ie, operational excellence. Mostly, this means having the right agreements with ports and terminals, preferably with little congestion.
“Buying a ship in the current market, with asset prices at an all-time high, means tht operators must also be very sure that the vessels can be used, as they have to be careful on their loan-to-value covenants. This can be done with the support of a few solid and stable costumers, who will deliver much needed volume to secure a certain cashflow.
“Having exposure to the current spot market is a must-have, but marketing a new service to a completely different customer base from dry bulk is a challenge.”
Comment on this article
Martyn Benson
December 15, 2021 at 3:19 pmNew container entrants also have to understand container fleet management and be set up to organise repositioning of surplus units, leasing and M&R control. These are things which are under-estimated by newcomers, who are annoyed when they see their container fleets and costs ballooning because they did not manage these items properly.