1 What is the current state of the shipping industry in your country?
Due to its geopolitical location, surrounded by sea on three sides and North Korea is located in the north, South Korea has a very large proportion of foreign trade due to its industrial structure, and therefore relies heavily on sea transportation for trade of goods. Accordingly, the shipping industry is highly developed compared to the size of the country or its population. Even on a global scale, Korea’s trade volume is very high.
According to the data released in April 2021 (IMF World Economic Outlook), the national land area is 10,036,371.5ha, which is rather small, but as of 2019, the population of Korea is 51.7 million, which is the 27th biggest in the world, that is, Korea has a high population density. However, gross domestic product (GDP) in 2020 is US$1,806 billion, which ranks 10th in the world, and GDP per person is US$34,866, which is 26th in the world. Converted to GDP purchasing power parity, it is a strong economy, equivalent to US$44,292.
Korea’s economy is developing based on technology-intensive industries such as automobile and semiconductor manufacturing, rather than primary industries using natural resources. Development of the shipping industry is very important for the Korean economy as a whole.
The Hyundai Research Institute predicted that Korea’s annual exports this year will reach US$605.3 billion, an increase of 18.1 per cent from last year. This is an upward revision from the forecast released in October last year (US$564.3 billion). The revised forecast is the highest ever, exceeding the 2018 performance of US$604.9 billion, and the trade volume is expected to reach US$1.15 trillion.
The current account has been in the surplus for 12 consecutive months. This is because ship exports have been brisk recently and the service balance has turned to surplus due to the improvement of the transportation balance. The increase in dividend income also contributed to the increase in overseas investment. On the other hand, financial accounts turned to decline for the first time in 12 months due to the inflow of foreign securities investment funds.
According to the Comparison of Export Competitiveness by Major Items in 2020 announced by the Korea Institute for Industrial Economics and Trade, last year’s system semiconductor exports reached US$30.3 billion, a record high. Last year, total automobile exports amounted to US$35.6 billion, ranking fourth in the world after Germany, Japan and the United States, up one notch from the previous year.
In the case of displays, while maintaining the world’s No. 1 market share, exports of organic light emitting diodes (OLEDs), a high value-added item, reached an all-time high of US$10.9 billion. The proportion of OLED exports in displays also exceeded 60 per cent for the first time, maintaining the world’s no. 1 market share (85.8 per cent). The sales volume of automobile batteries rose from third place in 2019 to second place last year.
In the domestic maritime and fishery sector, the reconstruction of shipping has been regularised despite the aggravation of difficulties caused by the coronavirus, and efforts to prepare for a new future, such as making existing industries smarter and nurturing of new industries, full-scale promotion of the fishing village new deal, nurturing of non-face-to-face fisheries, and establishment of intelligent ports.
In 2021, along with the recovery of the global economy, economic indicators in the maritime and fishery sector are expected to improve overall. In the maritime sector, demand for marine leisure tourism has decreased due to social distancing, but it is expected to show a recovery trend if the covid-19 situation improves. Except for last year’s exports in the fishery sector, where the decline was relatively small, production, exports and consumption are expected to increase, and prices are expected to remain flat. In the shipping sector, shipping volume is expected to exceed the pre-covid-19 level due to increased freight rates and increased global trade, and key indicators in the port sector and shipbuilding sector are also expected to recover or exceed 2019 levels.
2 What are the prevailing shipping market trends affecting your country? What has been the impact of the covid-19 pandemic?
According to the Ministry of Oceans and Fisheries, the total port volume handled by trade ports nationwide in 2020 was 1,497.35 million tons, a decrease of 8.9 per cent compared to the previous year before the coronavirus. The volume of imports and exports decreased by 10.8 per cent compared to the previous year, totalling 1,274.56 million tons, due to a decrease in imports of bituminous coal for power generation due to the policy to reduce carbon dioxide emissions and a decrease in trade in raw materials and consumer goods due to sluggish consumption in the EU and the US due to the prolonged covid-19. Container traffic has been on a downward trend since April, when the impact of covid-19 began, but since September, it has been on the rise due to the recovery of cargo volume due to a rebound in demand in the US and the government’s active support policies for export cargo such as temporary ships to the US and Southeast Asia to 29.8 million 20-foot equivalent unit, a decrease of 0.5 per cent from the previous year.
Looking at the trend of transportation volume compared to the previous year for the past 15 years, it is the first year in 2020, when the volume itself decreased after the economic downturn caused by the financial crisis in the US in 2008 decreased (5.5 per cent) in 2009. A certain amount of trade volume is expected to recover this year, but it merely seems to have recovered compared to last year as the impact of covid-19 continued.
In 2021, as the global economy is expected to gradually recover due to the development of vaccines and therapeutics for covid-19, the volume of trade, which had contracted last year, is expected to recover. In particular, North American routes have shown a marked recovery since the third quarter compared to the same period last year.
Although the volume of imports and exports by weight decreased significantly last year, the volume of container traffic only decreased by 0.5 per cent due to the increase in transshipment cargo from the global trade contraction. As uncertainty is high, the Korean government actively supports the ongoing merger between terminal operators and plans to reduce transshipment costs to increase operational efficiency and consult with the Port Authority to adjust the incentive system in place for the purpose of attracting cargo volume, and to attract more new routes.
The maritime and fisheries sector has presented the following policy tasks to overcome covid-19 and promote sustainable development. Promotion of marine leisure tourism popularisation, ecosystem-based marine management, establishment of a carbon-neutral realisation basis, strengthening of ability to respond to maritime rights and interests will be necessary. In the shipping sector, emphasis is placed on enhancing global shipping competitiveness, specialisation and stabilisation of shipping manpower, innovation in shipping finance, and establishment of a safe maritime transportation system. In the port sector, emphasis is placed on improving competitiveness and productivity of ports, creating eco-friendly intelligent ports and completing Korean smart port cities.
The Korean government extended various emergency support projects this year to support the coastal shipping industry, which is suffering from the covid-19 outbreak, this year as well as last year, providing loans at low interest rates or temporarily reducing interest rates. These include policies such as reduction of various commission rates, partial compensation of operating losses for coastal passenger ships, early refund of tax refund for duty-free oil, reduction of seafarers’ wage receivable contribution rate and support for seafarers’ safety products.
Meanwhile, digital transformation (DT) is accelerating due to covid-19, and accordingly, efforts are being made to promote DT in all areas of marine and fishery, improve the classification system of marine and fisheries science and technology, improve marine and fishery research and development, and create future jobs and build a system for education and manpower development.
In accordance with the macroscopic change by covid-19, changes are taking place in the logistics market, such as competition between e-commerce companies and logistics companies, and the full-fledged launch of a transportation service digital platform.
Just as the coronavirus pandemic has affected all industries, it has also affected the international logistics industry. In particular, in the case of air transportation, air fares have risen unimaginably since the spring of last year, as airlines reduced passenger flights and transported cargo only with dedicated cargo planes. Sea freight rates also went up, so the forwarding industry faced a serious liquidity crisis last year. This year, the covid-19 pandemic is expected to subside thanks to the supply of vaccines, and the IMF has predicted that the global economy will grow at 5.5 per cent this year, raising expectations for a recovery in the industry. In particular, the demand for e-commerce surged during the covid-19 pandemic last year, and if the US logistics market returns to normal as a result, shipments are expected to increase further this year. In addition, the global cold chain market is expected to increase by an average of 15 per cent or more per year due to the transportation of coronavirus vaccines and food, and the international logistics industry is also expected to accelerate its recovery.
Even if a virus-confirmed case occurs on board, measures to prevent covid-19 for the crew are being discussed so that they do not lead to a logistics disruption. Even if a confirmed case of covid-19 occurs in a vessel that has called at a domestic port, it is urgent to prepare a prompt response procedure to prevent vessel operation from being suspended or a logistical disruption. It is being emphasised that there should be no interruption in logistics, thanks to disinfecting and promptly boarding shift crew members to resume vessel operation, and that crew members should be given priority to receive the covid-19 vaccine.
3 Are there any recent domestic or international political or legislative developments that may have an impact on your country’s shipping market?
The IMO’s sulphur oxide emission regulation (IMO2020), which began in January last year, was an issue that brought about major changes in shipping, including the installation of scrubbers on ships and the supply of low sulphur oil. In addition to this, the IMO is working on a roadmap to reduce greenhouse gas emissions by 50 per cent by 2050, and the EU has included the shipping industry in the emission trading system. The shipping companies and companies related to ship development are in a situation where they cannot survive without considering eco-friendly issues.
IMO’s greenhouse gas (GHG) reduction regulations are expected to be strong and become an irreversible trend. The world is experiencing environmental disasters caused by climate change, and advanced countries are closely monitoring IMO regulations and warning that they will implement their own regulations if regulations are insufficient. Accordingly, in addition to the currently scheduled regulations, more stringent environmental regulations are expected to be introduced in the future, and the GHG issue is expected to be at the top of the IMO’s agenda for the coming years. In particular, this greenhouse gas regulation is a comprehensive regulation with an unprecedented wide range, and is expected to have a significant impact on newbuilding, operating vessels, operation patterns and ship competitiveness.
By an IMO Marine Environment Protection Committee amendment to the International Convention for the Prevention of Pollution from Ships, GHG (CO2) emission regulations will be applied to international sailing ships (‘existing ships’) currently operating from 1 January 2023. In other words, until now, GHG emission regulations for ships have been applied only to new ships built after 1 January 2023, but with the revision of the Convention by the IMO, it is now applied to existing ships.
In the case of a new built ship, the Energy Efficiency Design Index (EEDI), which is calculated based on the ship’s specifications from the ship’s construction stage, must be met, and for existing ships, the ship energy efficiency index (EEXI) must be satisfied, and at the same time, the reduction rate of the Carbon Intensity Indicator (CII) calculated according to the annual operation performance must also be satisfied.
Specifically, existing ships must meet a value that is reduced by about 20 per cent compared to the standard value of ship energy efficiency. For this, shipping companies must limit engine output or install energy efficiency improvement devices to increase the efficiency of ships.
In addition, the CII of existing ships should be improved by 1 per cent per year from 2020 to 2022 and 2 per cent per year from 2023 to 2026 compared to the CII as of 2019. To satisfy this, the shipowner must take measures such as operation on the optimal route and use of low-carbon fuel along with technical measures such as engine power limitation, and must be verified annually by the ship inspection agency to see whether the reduction rate has been achieved. Vessels that do not achieve the target can only be operated after establishing a ship energy efficiency improvement plan and obtaining approval.
Korea Register of Shipping (KR) signed a Strategic Alliance and Cooperation Agreement for Eco-Friendly Regulatory Response with a domestic shipbuilding company. This agreement was carried out to share and utilise technology and human resources, and to establish a close cooperative mechanism to proactively respond to international environmental regulations and to contribute to the sustainable growth and decarbonisation of the shipping and shipbuilding industry. According to the agreement, the KR will (1) study the optimal solution to improve the EEXI, (2) study the method to improve ship operation efficiency to improve the CII, and (3) joint development and strategic joint cooperation of propulsion ships by non-carbon fuels such as ammonia and hydrogen to reduce greenhouse gas is planned throughout the entire life cycle of ships.
In Korea, the public value of the fishery industry was raised by introducing the fisheries public interest payment system and by amending laws to systematically foster the fishery food industry, and the institutional basis was also laid to promote future industrialisation. Through the enforcement of new laws such as the Act for Management of Marine Waste and Marine Sediment Pollution, the Eco-Friendly Vessel Act, and the Act for Safe Fishing, the government actively promoted the advancement of the marine environment management and accident prevention system.
For the marine and fishery industry to overcome covid-19, the government implemented support measures mainly in the shipping and fishery sector, to support the business stability of the industry. A post-covid-19 response strategy specialising in the maritime and fishery sector was also established, focusing on digital and green conversion of the marine and fishery industry, and fostering non-face-to-face industries.
Further accelerating the growth of innovative industries, such as the digital transformation of ocean and fisheries and marine biotechnology, digitising the development of shipping and port logistics such as autonomous ships, smart ports and smart joint logistics centres, smart aquaculture and fishery management, smart distribution processing, is ongoing. Establishment of a smart value chain in the fishery industry by fostering the marine bio industry, infrastructure such as industrialisation incubators will be expanded, and new technologies such as antiviral response technology using marine life resources will be developed.
The Ministry of Oceans and Fisheries uses advanced technology to pre-emptively prevent accidents caused by negligence, which account for 84 per cent of all maritime accidents, using advanced technology through the Smart Maritime Traffic Policy Promotion Strategy, and a plan to create a new growth engine by actively entering the newly formed maritime digital market while converting to a digital system.
The smart marine transportation system is the world’s first marine digital technology developed and implemented, and it refers to an advanced marine transportation system that connects digital services such as marine navigation and high-speed maritime wireless communication networks that apply LTE technology to the sea. The Ministry of Oceans and Fisheries has been developing maritime navigation through the Korean E-Navigation Construction Project since 2016, and has built infrastructure such as 620 high-speed maritime wireless communication network base stations and network operation centres along the coast of the country, and has been piloting the service quality from this year.
The Big Data Platform and Center for Oceans and Fisheries is a representative platform leading the Korean Digital New Deal (data dam) by collecting and providing ocean and fishery-related data by 2022 and providing various innovative services through data convergence and fusion.
Looking at the major centres constituting the big data platform in the maritime and fishery sector, first, the Port Logistics Big Data Center is composed of the Shipping and Port Logistics Information Association and includes ship schedule information, container loading and unloading information.
The Marine Tourism/Leisure/Education Industry Information Center is composed of environmental science and technology and collects data generated in the ocean space, such as coastline, algae, daylight hours, water quality distribution, salinity distribution and surface water temperature, and applies them to education and industry provide possible services.
4 What are the key regulatory and compliance issues for your country’s shipping market? What’s coming up in the near future?
The domestic shipping industry is struggling with a prolonged big chaos due to high freight rates and a shortage of ships. In the industry, anxiety is growing as shipping companies have to worry about survival. That is, shipping companies were recently notified of an astronomical fine from the Fair Trade Commission.
According to the recent hearsay from shipping industry, the Shanghai Container Freight Index (SCFI) recorded 3785.4, up 37.04 from the previous week, breaking a record high for seven consecutive weeks. This is because the supply of ships is not keeping pace with the rapid recovery of the global economy. The shipping industry has been in a recession for 10 years, and as the effects of the Suez Canal accident at the end of March continue, so do backlogs at major ports.
As small and medium-sized exporters suffered difficulties due to the shortage of ships and the endlessly soaring freight rates, domestic shipping companies such as HMM and SM Line started to solve the difficulties by putting in multi-purpose ships in addition to container ships. A multipurpose ship is a ship designed to transport extra-large special cargo and heavy cargo such as petrochemical facilities and power generation facilities, but can also carry containers if necessary. However, even these temporary measures are unable to meet the overflowing demand.
In this situation, 23 domestic and foreign shipping companies were recently notified of a fine of up to 560 billion won from the Fair Trade Commission (FTC). This is in response to the fact that the timber import industry reported to the FTC that domestic container liners raised freight rates on Southeast Asian routes all at once in 2018. At that time, the timber industry cancelled the FTC report through communications with shipping companies, but the FTC continued the investigation. The target companies are 12 domestic container liners such as HMM, SM Line, Heung-A Shipping and SINOKOR.
The shipping industry is of the opinion that the FTC’s action is unfair based on article 29 of the Shipping Act. Article 29 of the Shipping Act stipulates that ‘a shipping company may enter into a contract or joint action regarding freight rates, ship arrangement, cargo loading, and other conditions of transport.’ Shipping companies are not subject to general laws such as the Labour Standards Act, but to special laws, such as the Seafarers Act and the Shipping Act. It is also pointed out that this indictment of the FTC completely contradicts the government’s shipping reconstruction policy.
If the fine is imposed as the FTC insists, it is expected that a huge fine will be imposed due to diplomatic friction with foreign countries and retaliatory measures against domestic shipping companies. The shipping companies may have to sell their vessels to pay the astronomical fines imposed by domestic and foreign governments. If that happens, the situation for domestic exporters and importers who are suffering from the shipping crisis could get worse.
The National Assembly also put a brake on the imposition of fines by the FTC. At a plenary meeting, the National Assembly’s Agriculture, Forestry, Livestock, Food, and Maritime Affairs and Fisheries Committee (Agricultural and Maritime Affairs Commission) adopted the Resolution urging the application of the Shipping Act to the joint actions of regular container shipping companies.
An industry official said, ‘If shipping companies that have suffered a downturn for 10 years pay a fine of more than 500 billion won, they will inevitably go bankrupt. Discussions on whether the Fair Trade Commission’s actions are justified should be held again.’
Meanwhile, a basic agreement was signed between shipping companies to form a Korean-style maritime alliance, K-Alliance, in which five liner shipping companies, SM Line, HMM, SINOKOR, Pan Ocean and Heunga Line, participate.
This signing ceremony was formed to strengthen cooperation between national shippers in the alliance formation plan proposed by the Ministry of Oceans and Fisheries and Korea Maritime Promotion Corporation to strengthen the competitiveness of national shipping companies in Southeast Asia, where there is high growth potential as a global production base. This was accomplished with the voluntary participation of national shipping companies belonging to the Federation (KSP). The composition of the K-Alliance is the third shipping company after the first (2017–2018) route restructuring promoted and participated by the KSP and the second (December 2019) SINOKOR – Heunga Shipping’s container division integration.
In this maritime alliance, out of the 11 national shipping companies operating on Southeast Asian routes, five shipping companies, which account for about 50 per cent of the capacity of Southeast Asian routes, took the first step toward the official launch of the K-Alliance. This is the first attempt to form a maritime alliance consisting of only national shipping companies to create synergies through economies of scale. The remaining six shipping companies that were not able to participate at this time can partially participate in code-share operations by forming strategic partnerships after the launch of the K-Alliance.
According to the Ministry of Oceans and Fisheries, it is expected that excessive competition will be resolved due to overlapping voyage schedule adjustments, and service routes will be expanded by opening new routes. It is expected that the quality of transportation services will improve and sales competitiveness will strengthen by increasing the number of transportations, which is an important requirement due to the characteristics of Southeast Asian routes. In addition, costs are expected to reduce and the efficiency of asset management to improve by jointly placing high-efficiency and low-cost new shipbuilding orders, joint contracts for shipping and port facilities, such as terminals and yards, and joint use of container equipment. As HMM and SM line, which operate deep sea routes, and SINOKOR, Pan Ocean and Heunga Line, which provide services within Asia, formed an alliance, cargo within Asia is collected and transported by ocean routes such as the Americas and Europe, and it is expected that a win-win cooperation system will also be established to transship sea route cargo and distribute it within the Asian region.
5 What are the shipping industry’s current sources of finance? How do you predict they will develop, and what are the advantages and challenges to financing a vessel in your country?
The Korean shipping companies can get the financial aid from ordinary domestic banks for their business such as shipbuilding and sales and purchase of ships. Recently, for the specific needs for the shipping industry, Korean Ocean Business Corporation (KOBC) has been launched for the support of finance to the domestic shipping companies.
KOBC is promoting the project in line with the shipping reconstruction plan, while doing its best to minimise the damage caused by covid-19 on shipping companies. KOBC supported a total of 80 shipping companies by expanding their fleet and supplying liquidity to national shipping companies, expanded the scale of sale and leasback (S&LB) business to overcome the covid-19 crisis, and swiftly promoted new support projects, such as deferment of principal and interest repayment of shipping companies and acquisition of corporate bonds. KOBC has been making every effort to maintain the sales and employment of national shipping companies by mobilising all available resources.
HMM and other domestic shipping companies’ efforts to support to normalise their business have paid off, and achieved an operating surplus in 21 quarters. It has established itself as a pioneer. In addition, by supporting the conversion of eco-friendly ships and the installation of eco-friendly facilities, KOBC supported an early response to changes in the shipping industry’s environment, and laid the foundation for improving the cargo loading rate of national shipping companies by opening the excellent shipowner certification centre. To support national shipping companies in establishing management strategies, KOBC improved the quality of the market information published by the corporation, built a shipping information platform for users, such as operating a social network service channel, and started announcing the Korean Dry Freight Index. Efforts have been made to improve the accessibility of information by national shipping companies.
KOBC implements financial support for the Korean maritime industry as follows.
First, KOBC supports national shipping companies to solve the financial blind spots and gain industrial competitiveness by implementing the tasks in the second half of the shipping reconstruction plan without any setbacks. KOBC provides financial services necessary for national shipping companies to acquire assets or refinance ships in a timely manner, from new and used ships as well as containers, port terminals, hinterland logistics facilities and eco-friendly facilities.
Second, KOBC lays the foundation for future growth of the national shipping industry and provides effective support by expanding shipping financial services required by national shipping companies. In the Southeast Asian route market, KOBC supports the establishment of a cooperative system between container shipping companies to increase market share, and, according to market demands, KOBC supports effective shipping tailored to shipping companies by introducing existing ships and providing S&LB business as operating leases. In addition, in accordance with the amended Construction Act, KOBC expands the scope of the guarantee business to provide the performance guarantee required by shipping companies when bidding and contract signing.
Third, KOBC will minimise the damage to national shipping companies in preparation for the prolonged covid-19 situation. KOBC expanded the loan to value of the S&LB business and continues to provide deferred repayment options. In addition, it reduces the financial burden of shipping companies through loan interest support for emergency management funds, and provides the necessary liquidity to the market in a timely manner through the acquisition of corporate bonds and the expansion of the P-CBO incorporation of the Korea Credit Guarantee Fund into shipping companies.
Fourth, KOBC develops and operates a shipping index and freight rate prediction model to improve the quality of shipping market information and support risk management for shipping companies. It will build a high-quality database and apply optimised analysis techniques to secure public confidence in the shipping index, while enhancing the utility of freight forecasting models for each ship type. Furthermore, it supports the value of ships and LTV maintenance, which are core assets of national shipping companies, by comprehensively managing ship specifications, ship transactions and ship price information.
Fifth, KOBC prepares a place for regular communication between shipping companies and related parties using non-contact technology, check the policy direction of the corporation and secure support measures that reflect the opinions of the market.
6 Have there been any recent significant domestic or foreign court decisions or arbitration awards that impact on your country’s shipping market?
We will introduce six judgments rendered by the Korean Supreme Court (KSC) in 2019 and 2020 regarding shipping and maritime law issues. Summaries of the court judgments are as follows:
- The time chartered vessel can be subject to the maritime lien under article 777 of the Korean Commercial Code (KCC) since the legal nature of the time charterparty is similar to the bareboat charterparty and thus article 850(2) of the KCC can be mutandis mutatis applicable (KSC case 2019. 7. 24. Case No. 2017 Ma 1442).
- There is no need of presenting the original bill of lading (B/L) when the B/L is surrendered. As a result, the shipping agent who issued the delivery order without collecting the original B/L was not liable for the loss of cargo against the original B/L holder (KSC 2019. 4. 11. Case No. 2016 Da 276719).
- The exemption of the carrier’s liability based on fire incident was admitted during the shipowner’s limitation of liability proceeding. Then it was mainly discussed whether the carrier’s negligence contributed to the fire or not (KSC 2019. 8. 29. Case No. 2015 Da 220627).
- The time charterer cannot set off the price of the remaining bunker in the vessel against the shipowner’s claim after the redelivery of such vessel because an additional clause regarding the remaining bunker cannot be applied to the termination of the time charter during the charter period and the time charterer cannot obtain the ownership of bunker without payment for such a bunker under English law, which is the governing law of the charterparty (KSC case 2019. 12. 27. Case No. 2019 Da 218462).
- Deciding a narrow sea passage shall be determined by the geographical conditions of the sea passage, the type and size of the vessel, the volume of sea traffic and the natural conditions of the passage. When a sea passage is considered as the narrow one, the navigational method for the narrow sea passage must be applied regardless of the size or direction of the vessel (KSC 2020. 1. 16. Docket No. 2019 Da 54092).
- A shipowner who is responsible for a collision accident, is not liable for ship salvage costs against the other shipowner that sank to the bottom of the sea, approximately 90 metres below the surface, because the loss of the shipowner of the sunken vessel is not realised and established considering the possibility of refloating such a vessel (KSC 2020. 7. 9. Case No. 2017 Da 56455).
7 What is the outlook for your country’s shipping market? Which sectors are likely to grow, and which not?
The shipping market in 2021 is expected to recover in all sectors, including container ships, as expectations for economic recovery increase due to the reduction in the impact of the covid-19 pandemic caused by the worldwide spread of vaccines. In addition, as the demand for digitalisation is rapidly increasing due to the impact of covid-19, the discussion on environmental regulations is expected to deepen.
In the shipping market sector, expectations for economic recovery are increasing following the spread of vaccines, and rising oil and raw material prices are showing signs of economic recovery. Accordingly, a favourable environment for the shipping market is expected to be created. Container ship rates are already on the rise, and the overall market conditions for container ships, bulk carriers and tankers are expected to rise in 2021.
In the container market last year, HMM recorded an operating profit of 980 billion Korean won, and the business performance of liners has improved overall due to an unexpected freight rate rise due to the covid-19 pandemic. In the container sector last year, as the production schedule from China collapsed in the early stages of the coronavirus pandemic, concerns about supply continued for about three months, which became the catalyst for a surge in global demand, leading to Europe and the United States, and eventually resulted in a decrease in supply and demand. As this supply problem occurred, the resource shortage of shipping companies was intertwined and overall difficulties in logistics such as port handling volume and crew supply and demand problems arose. However, for shipping companies, this resulted in a rise in freight rates, allowing shipping companies to maintain the quality of their services as much as possible.
Bulk and tankers performed poorly compared with the container market. The bulk market showed a low market situation in the first half due to the influence of covid-19 and then showed a slight upward trend in the second half, but it was only hovering around the Baltic Dry Index of 1,600. Rather unusually, the charter rate of Capesize is lower than that of Panamax or Supramax. Due to the trade conflict between China and Australia, Capesize, which was put into the Australian route, had nowhere to go, and the value of the ship decreased. As they searched for alternative ports, such as Indonesia and Russia, Panamax and Supramax, the optimal size of the port has increased in value.
In the shipping industry, demand for digitalisation is rapidly increasing due to the impact of covid-19, and the issue of maintaining a competitive order among competing shipping companies is emerging as container ship freight rates soar. In addition, following the IMO 2020 sulphur oxide regulation, carbon emission regulation is expected to continue. It is expected that response to this will emerge as an important topic. As a domestic issue, the discussion on Korea-flagged shipowners’ issues is expected to deepen. In the field of maritime safety, the Iranian seizure of a Korean oil tanker became an issue last year. It is expected that the need for a systematic approach to these international areas will emerge. As for environmental regulations, the Korean government has declared it wants to be carbon-neutral by 2050, so it is necessary to respond to the IMO’s carbon emission target.
In the international logistics field, the forwarding market was reduced due to covid-19 in 2020. In 2021, the forwarder market is expected to recover as a result of expectations for economic recovery. In the case of forwarders, some companies have improved their performance due to the occurrence of emergency shipments in 2020. In 2021, the opportunity for such an earnings recovery is expected to expand a little more against the background of the economic recovery.
In 2021, along with the recovery of the global economy, economic indicators in the maritime and fishery sector are expected to improve overall. In the maritime sector, demand for marine leisure tourism has decreased due to social distancing, but it is expected to show a recovery if the covid-19 situation improves. Except for last year’s exports in the fisheries sector, where the decline was relatively small, production, exports and consumption are expected to increase, and prices are expected to remain flat. In the shipping sector, shipping volume is expected to exceed pre-covid-19 levels due to increased freight rates and increased global trade, and key indicators in the port sector and shipbuilding sector are also expected to recover or exceed 2019 levels.
This chapter was accurate as at August 2021.
The Inside Track
What are the particular skills that clients are looking for in an effective shipping lawyer?
Shipping lawyers need the ability of looking at issues with a global view. Since shipping matters concern international clients all around the world, shipping lawyers shall be aware of the location, time and the practice of their clients to meet their needs and requests and shall be ready to connect and cooperate with foreign shipping lawyers. Extensive, comprehensive and reasonable legal advice provided promptly is necessary since shipping matters usually demand speedy decisions. Effective shipping lawyers shall have a strong solid knowledge of the shipping industry and the legal principles. Korean lawyers need the ability to communicate in English to be specialist shipping lawyers.
What are the key considerations for clients and their lawyers when arranging finance for a shipping transaction?
The most important element in arranging for a shipping transaction is ‘safety’. The lawyers shall be well aware of the full context of the transaction contract and should find out the poisonous clauses which can be risky and hazardous to the client. The lawyers need comprehensive understanding of the structure of the transaction to utilise the most effective way of arranging finance. They should have an insight into the nature of the participating parties such as the borrower, lender, shipper, carrier, shipowner, bank and guarantor, etc.
What are the most interesting and challenging cases you have dealt with in the past year?
On 21 May 2018, a fire broke out on MV Auto Banner, a car-carrier of 55,000 tons. As a result, the vessel was burnt out and more than 1,500 used cars on board were totally damaged by the fire. The head owners of the vessel declared constructive total loss and claimed damages against the time charterers. We have been advising and representing the time charterer (Hyundai Glovis) for the defence from the head owners. The incident on MV Auto Banner was the biggest casualty case of 2018 in Korea.
