Low Rate and High Exchange Rate: Double Trouble for Shipping Industry

Korean oversea shipping industry is experiencing a serious affliction because of the lowering of the average freight rates for container carriers in the route of North-American line which is their major source of earning. The industry is in a “double-trouble-situation” in which they are making profits but experiencing the “exchange-rate-phobia” that causes a budget deficit.

On 15th, according to Ministry of Maritime Affairs and Fisheries and shipping industry, during the first quarter of this year, the average freight rates for the North-American line has been lowered to 1.800 dollars per TEU (1 TEU means a 20 feet container). It is a lowing of 15 % comparing with last year’s 2.115 dollars. The main reason is the decrease of freights between Asia and North America caused by dwindling of American economy.

The industry’s countermeasure: A representative at Hyundai Merchant Marine Co., Ltd. said, “Last year’s market condition was a record-setting level lifting up the rate for a container to 2.200 dollars. “We are looking for a countermeasure because we don’t know where would be the bottom line for the lowering of the rates caused by the stagnation of American economy.” He added.

An unnamed official at Hanjin shipping also said “The rate for North-American line tends to be closely related with American market situation. He forecast the market situation by saying “We are expecting that there will no longer be a continuous falling down of the rate.”

Shipping industry’s deficit caused by the exchange rate: Major shipping companies, such as Hyundai and Hanjin, suffered a deficit although their sale and profits of the first quarter increased by great margin. In case of Hyundai, the profit during the first quarter of this year increased to 155.7 billion won, a gaining of 17.2% comparing with last year’s 132.9 billion won. However, because of the rise of the exchange rate, their net profit, a surplus of 41.5 billion won for last year, fell down to a deficit of 73.6 billion won.

Although Hanjin’s sales and operating profit increased to 1215.6 billion won and 101.7 billion won, an increase of 340% comparing with last year, their ordinary profit was a deficit of 142.9 billion won and their net profit for last year was a deficit of 99.8 won.

The Shipping industry argued that they have to improve their accounting systems to fix the irrational fact caused by the exchange rate in which their good business result to a deficit on the ledger.

daviskim@donga.com