A major contraction is occurring in the global container shipping market, marked by the steepest decline in global shipping rates in nearly a decade. This trend is raising serious concerns for the domestic South Korean shipping industry, particularly its largest carrier, HMM.
Steep Decline in Shipping Rates
The Shanghai Containerized Freight Index (SCFI), a key barometer for global container shipping rates, has seen a dramatic drop:
- Largest Weekly Decline: As of September 19, the SCFI plummeted to 1,198.21, marking a 14.3% drop from the previous week. This is the largest weekly decline since November 2015 and the first time the index has fallen below 1,200 since December 2023.
- Quarterly Trend: The average SCFI for the second quarter was 1,645.4, representing a 37.4% decrease year-over-year.
- Route Plummets: Freight rates for U.S. routes saw a sharp fall, with the West Coast dropping 31% and the East Coast dropping 23% in a single week.
- Global Indicator: The China Containerized Freight Index (CCFI) also recorded a weekly decline to 1,120.23.
Factors Driving the Decline
Industry experts point to a combination of geopolitical, economic, and supply factors driving the rate collapse:
- Oversupply of Vessels: An oversupply of container ships is intensifying pressure on rates. New ship deliveries are expected to exceed 6% of the global fleet capacity by the end of the year, leading to an inevitable deterioration of market conditions.
- Decreased Trade Volume: Trade volume is significantly slowing due to the global economic slowdown and inflation. The U.S.-initiated trade war has specifically led to decreased trade volume.
- Geopolitical Impact: While geopolitical risks like the Red Sea crisis had initially driven rates up last year, the current economic pressures are overwhelming these factors.
- New U.S. Tariffs: Port entry fees that the United States plans to impose on Chinese ships starting in mid-October are expected to act as an additional negative factor, further reducing global trade volume.
Outlook for Domestic Carriers
The downturn is gathering dark clouds over the performance of the domestic shipping industry. HMM, South Korea’s largest container carrier, is projected to see a sharp decline in its third-quarter earnings:
- Operating Profit: Estimated to plummet by 81.8% year-on-year to 265.8 billion won.
- Net Profit: Expected to shrink by 74.9% year-on-year to 436.1 billion won.
- Sales: Projected to decrease by 26.5% to 2.6119 trillion won.
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Source: Business Korea
