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Mega boxships have ‘polarised profitability’

Mega boxships have ‘polarised profitability’

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C K Yoo, the president and CEO of South Korea’s Hyundai Merchant Marine (HMM), used his prime position as keynote at today’s TPM Asia conference in Shenzhen to discuss how the traditional business cycles of container shipping are a thing of the past, and profits are being “polarised” thanks to the advent of the mega boxship.

Yoo, who was appointed for his second stint as HMM boss last year, said today mega containerships had ushered in consolidation into the sector, while warning his peers of a continuing troublesome demand outlook for box shipping.

“In the past, we thought that shipping business was cyclical – meaning that any disruption in supply and demand would, over time, return to equilibrium,” Yoo told delegates. “But since 2011, the traditional business cycle disappeared and we have been experiencing an L-shaped market condition, plagued by a languished pace of containerisation.”

Yoo backed up his argument by noting that the GDP multiplier, which the industry used to use to reflect the correlation coefficient between global cargo volumes and global GDP growth, has declined to below 1.5 since 2010 from its average of 2-4 in the pre-global financial crisis period.

“On the top of the tepid demand, the introduction of megaships in the early 2010s contributed to a lengthy oversupply situation in the market, whose impact has been far reaching,” Yoo said. He went on to relate how last month’s gathering of the Box Club featured far fewer faces than in the past thanks to the ongoing consolidation seen in the sector.

Yoo said one of the triggers for all the consolidation in the past couple of years had been “the polarisation of profitability”.

In the 1990s through to 2010, the profitability of shipping lines tended to be synchronised, Yoo maintained. The appearance this decade of mega boxships changed all that, he argued both thanks to their sheer scale, but also the speed with which shipyards are now capable of churning out these giant new ships that are up to 400 m in length.

Yoo is at the helm of South Korea’s flagship carrier which has entered into agreements with the two members of 2M, Maersk and MSC, to participate on the main east-west tradelanes, while on intra-Asia HMM has partnered with all the other Korean containerlines in a bid to drive efficiencies through scale. Under Yoo, HMM is entering a significant fleet rejuvenation and expansion phase after a very tricky restructuring last year.

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Jason Jiang

Jason worked for a number of logistics firms following his English degree, then switched this hands-on experience to writing and has since become one the most prolific writers on the diverse China logistics industry writing for a host of titles including Supply Chain Asia, Cargo Facts and Air Cargo Week. Jason’s access to the biggest shippers with business in China has proved an invaluable source of exclusives.

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