Hyundai Merchant Marine’s building spree adds to global orderbook

 The Hyundai Dream, a 13,100 TEU vessel, is pictured. ( Photo: HMM )

The Hyundai Dream, a 13,100 TEU vessel, is pictured. (Photo: HMM)

South Korea rebuilding its shipping/export capacity after Hanjin liquidated

Hyundai Merchant Marine, the world’s 12th largest container line by TEU capacity, is making a play to leapfrog its competitors by embarking on a new order spree. HMM is the only remaining South Korean deep-sea containership line since Hanjin Shipping Co. Ltd. went bankrupt in 2016 and was liquidated last year. 

HMM’s newest order will add a total of 388,000 TEUs to its fleet capacity, which currently stands at 458,247 TEUs. Hyundai Merchant Marine announced that it reached an agreement with Samsung Heavy Industries to build five 23,000 TEU vessels and will build another seven 23,000 TEU vessels at Daewoo Shipbuilding & Marine Engineering. A further eight 14,000 TEU ships will be constructed at Hyundai Heavy Industries. The twelve 23,000 TEU ships will be delivered beginning in Q2 2020, and the 14,000 TEU ships starting in Q2 2021.

The twelve new 23,000 TEU ships will be far too large to go through the Panama Canal, which after its expansion can handle containerships with capacities up to 14,000 TEUs. Instead, the new fleet will be dedicated to HMM’s recently bolstered Asia-Europe service. Two weeks ago, HMM said that it would end its Transatlantic service and would no longer deliver to the ports on its TA2 and TA3 lines, which included Bremerhaven, Felixstowe, Antwerp, Rotterdam, Le Havre, New York, Norfolk, Charleston, and Savannah. Evergreen Marine, based in Taiwan, also said it was ending one of its three Transatlantic lines, while Maersk is notably expanding its Transatlantic offerings by establishing a new weekly service running from the various ports in the Mediterranean to Montreal and Halifax.

“To comply with the new environmental regulations, HMM will opt for scrubber installation or LNG bunkering for all the newbuilding vessels after thorough discussions with the finally selected shipbuilder,” wrote HMM in a statement

In January 2017, while a court declared Hanjin Shipping bankrupt, HMM received a $660M rescue package from the South Korean government. The fact that HMM’s megaship order is being spread almost evenly across South Korea’s ‘big three’ domestic shipyards shows just how committed the South Korean government is to fully supporting its shipping industry. Hyundai Merchant Marine moves about 25% of South Korea’s exports, and its share will grow rapidly in the near future as it expands its fleet’s capacity.

In April of this year, Seoul revealed its five year plan to rebuild South Korea’s shipping industry, and said that the government will finance the construction of at least 200 ships by 2020, including 140 bulk carriers and 60 container ships (HMM’s new order represents 20 of those 60). 

“In particular, the five-year plan focuses on the ecosystem of various industries, such as shipbuilding, ports, and finance, with the future vision symbiotic with the reconstruction of the maritime industry,” said South Korea’s Ministries of Oceans and Fisheries in a statement on the plan. 

A few months ago, when HMM announced its intentions to order these new vessels—but before it had reached agreements with shipbuilders—the company referred to something called its “Capacity of 1 Million TEU” strategy. And in 2016, during part of its shareholder-mandated restructuring, HMM said that it wanted to control 5% of maritime market share by 2021. Based on today’s global active fleet and orderbook, Hyundai Merchant Marine will have to grow to a capacity of about 1.2M TEUs to reach 5% share from its current position of 1.5%.

The global orderbook-to-fleet ratio has started climbing again from a 20 year low earlier this year at 10% to 20.3% for Post Panamax vessels this week, according to Stifel’s June 4 ‘First Watch’ Maritime Industry Update. While fleets’ more aggressive plans to expand may be related to slowly strengthening container box and charter rates, supply and demand are not the only factors influencing new ship orders. These include the present age of fleets, investment opportunities, finance, and shipyards’ appetite for work. HMM in particular may be looking to increase its bargaining power with Maersk and Mediterranean Shipping Company, its alliance partners: the delivery of the large vessels will coincide with the end of HMM’s current agreement with those lines. HMM may also feel insulated from normal supply and demand considerations, for the time being, because of its favored relationship with the South Korean government. 

Stay up-to-date with the latest commentary and insights on FreightTech and the impact to the markets by subscribing.