As Coronavirus Weighs on Trade, South Korea Launches World’s Largest Container Ship
Date: Friday, April 24, 2020
Source: The Wall Street Journal
The rollout comes as Seoul is pumping $33 billion to shield key industries like transportation from the coronavirus shock
South Korea launched the world’s biggest container ship Thursday at a time when carriers are drastically cutting capacity to deal with a collapse in global trade caused by the coronavirus pandemic.
South Korean President Moon Jae-in attended the christening of the Algeciras, a vessel as long as four football fields with capacity for 24,000 containers. It is the first of a dozen new-generation vessels called megamaxes that will be delivered over the next year and operated by the country’s flagship carrier, HMM.
The christening came a day after Mr. Moon launched a $33 billion rescue fund to protect seven sectors that Korean officials consider the country’s mainstay industries—shipping, shipbuilding, airlines, automotive manufacturing, machinery manufacturing, power generation and telecommunications—from the economic fallout of the coronavirus restrictions.
“The government will be with companies till the end so that the shipping industry can ride out the coming wave,” Mr. Moon said. “We will certainly prevent the collapse of the global supply chain.”
Liner operators have canceled around 400 sailings since February across the world’s busiest trade routes, according to maritime trade research group Sea-Intelligence Consulting, as demand in Western countries has plummeted amid the coronavirus lockdowns. Shipping analysts expect more cancellations as rising unemployment and weakening manufacturing and retail markets severely curtail demand.
“The HMM timing is totally unfortunate with so many big container ships idled,” said Basil Karatzas, who runs New York-based Karatzas Marine Advisors. “Ultra-large boxships on the main trade routes are the hardest hit, departing Far East ports less than half empty when Chinese manufacturing came to a halt and now facing a collapse in demand from the U.S. and Europe.”
HMM, formerly known as Hyundai Merchant Marine, is especially challenged. The carrier has posted more than $1.6 billion in losses over the past five years and has been bailed out repeatedly by the Korean government through state lender Korea Development Bank, HMM’s main creditor.
“HMM is facing an uncertain future,” a KDB executive said, asking not to be named because he isn’t authorized to talk to the press. “The megaships were ordered two years ago in the hope that HMM would be able to compete with bigger carriers and turn the corner. But the virus has changed everything and it will be hard utilizing these vessels effectively.”
HMM holds 1.9% of the global container market, according to research group Alphaliner. That is on par with several regional carriers but far behind the biggest operators, including Denmark’s A.P. Moller-Maersk A/S and Switzerland-based Mediterranean Shipping Co.
HMM was an associate member of the 2M Alliance, made up of Maersk and MSC, but its prospects of becoming a full member were dashed last year when 2M described the container line’s megaship order “nothing less than crazy” because it would have added hundreds of thousands of boxes of extra capacity.
Alliance membership allows carriers to share capacity on vessels, helping them reduce operating costs.
HMM splashed a total of $2.8 billion for the dozen megaships and another eight smaller ships that can move 15,000 boxes each in an order signed with Korean yards in 2018.
HMM narrowly escaped default in 2017 thanks to a $660 million state bailout and received a further $5 billion last year to finance the ship order and invest in port assets.