The shipping industry is expected to record solid profits due to the rise in the won-dollar exchange rate despite a decline in the market conditions. Many anticipated that profitability would worsen due to an oversupply as ships ordered during the pandemic are delivered, but it is believed that some losses can be offset by exchange gains.
According to the shipping industry on the 24th, the Shanghai Containerized Freight Index (SCFI), which reflects the spot freight rates of 15 shipping routes in the Shanghai export container transport market, recorded 2390.17 on the 20th. This figure represents a 36% decrease compared to the 3733.80 recorded in early July, which was the year's peak. In January 2022, during the height of the pandemic, it reached 5109.60.
The reason for the drop in freight rates is that new vessels ordered during the pandemic are being gradually delivered, increasing supply. The volume of container ships delivered recorded around 1 million TEU (Twenty-foot Equivalent Unit; 1 TEU is one 6-meter container) annually from 2020 to 2022, reached 2.3 million TEU last year, and is expected to surpass 3 million TEU this year. According to Clarkson Research, a British shipbuilding and shipping market analysis agency, the volume of container ship deliveries is projected to average 1.6 million TEU annually over the next three years.
Despite the shipping industry's downturn cycle, if the strong dollar (weak won) continues, shipping corporations are expected to perform well. This is because the primary currency for shipping operations is the dollar. Even if maritime freight rates decrease, a higher dollar value allows for exchange gains when converted to won. For example, if the average won-dollar exchange rate was 1307.8 won in September and a cargo was transferred for $4,000, applying the exchange rate in December (averaging 1435.33 won) would yield an additional revenue of 9.8%.
HMM, Korea's largest shipping company, recorded a currency translation gain of 208.5 billion won in the third quarter of 2022 when the average won-dollar exchange rate was 1,391 won. HMM also recorded a currency translation gain of 1.2 trillion won in the first quarter of 2009 when the average won-dollar exchange rate was 1,432 won due to the impact of the financial crisis.
Heung-A Shipping, a domestic container shipping company, also recorded a currency translation gain of 13 billion won in the third quarter of 2022, a 184.5% increase compared to the same period last year. Korea Line Corporation reported a currency translation gain of 165.1 billion won, a 245.6% increase over the same period. A top analyst at Korea Investment & Securities noted, "The strong dollar trend positively influences the performance of shipping corporations whose functional currency is the dollar."
On the 23rd, the won-dollar exchange rate closed at 1,452 won. The closing prices on the 19th and 20th were 1,451.9 won and 1,451.4 won respectively, exceeding 1,450 won for three consecutive trading days. This is the first time since March 11-13, 2009, during the financial crisis, that the won-dollar exchange rate has surpassed 1,450 won for three consecutive trading days. A shipping industry official said, "While the increase in the exchange rate will boost accounting profits, it will be difficult to avoid the downturn cycle caused by oversupply."