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Friday, April 22, 2016
HANJIN FOLLOWING HYUNDAI MERCHANT MARINE???
Freight Investor Services LEADING THE WAY IN FREIGHT AND COMMODITY DERIVATIVES
Hanjin Shipping to follow HMM's lead?
Rates on the key Asia-North West Europe trade remained unchanged this week at $271 teu. This represents the first time the index has remained flat week-on-week since April 2011, in what is usually an extremely volatile trade.
With rates still historically low and an impending GRI scheduled for May 1st, indicative reports suggest that average utilisations in the market are relatively healthy at +90%. In some instances it’s even being reported that cargo is being rolled and goes some way to explaining this week’s flat index.
With strong utilisations going into next week it’s looking increasingly likely that the latest increase will at least be temporarily successful, however as usual the question remains as to whether demand is strong enough to maintain any increase.
At least one carrier believes volumes could be positive for the remainder of the year. Maersk Line has suggested that the weak volumes reported over the past 15 months were partly attributed to retailers running down stocks. It’s expected this trend will reverse and could leave to a rebound in trade later this year.
In continuing developments Hanjin Shipping has seen its share price close at an all-time low of KRW 2,605 after falling 26.4% since the start of the year. Similar to rival Korean line Hyundai Merchant Marine, there are increasing concerns over the financial stability of Hanjin Shipping with Korean finance ministers suggesting that the nation’s shipping lines could face restructuring.
In fact Hanjin Shipping has itself several large bond repayments due this year running into the hundreds of million dollars and could easily find itself in the same situation as its Korean compatriot. Reports even suggest that Hanjin could look to cut its own charter payments to owners if HMM is successful in doing so.
Although not confirmed local media have suggested that HMM will become a subsidiary of Korea Development Bank, effectively creating a state run enterprise and perhaps staving off the additional consolidation that carriers such as Maersk Line are looking for.
Carriers have been clear in attempts to reduce costs in recent years, however revenue protection remains a significant challenge. Some carriers will no doubt be hoping for greater pricing discipline if further consolidation takes place, however shouldn’t carriers be taking a more pro-active approach to managing their revenue risk?
Despite shipping lines clearly stating the risks of falling freight rates to their business they are all but powerless to market forces of supply and demand. Given the opportunity to secure future income regardless of rate volatility why would beleaguered carriers not take up the opportunity?
If carriers are unwilling to manage their risk should shipowners instead push them to use hedging tools?
A shipowner that can not only secure a long term time charter to a carrier but also ensure the carrier in question has hedged their future vessels income, will be limiting the risk that the carrier will not be able to make successful charter payments in the future.
With carriers able to secure their future income via derivatives it’s difficult to sympathise with those that have done little to protect their own income in a declining market.