The shipping industry is expected to report solid profits despite deteriorating market conditions due to the rise in the won-dollar exchange rate. While many anticipated that profitability would decline due to oversupply as ships ordered during the COVID-19 pandemic are being delivered, it is believed that some losses can be offset by foreign exchange gains.
According to the shipping industry on the 24th, the Shanghai Containerized Freight Index (SCFI), which reflects spot freight rates on 15 shipping routes in the Shanghai export container transport market, recorded 2390.17 on the 20th. This is a decrease of 36% compared to the mid-year peak of 3733.80 in early July. In January 2022, during the height of the COVID-19 pandemic, it hit 5109.60.
The reason for the declining freight rates is that new ships ordered during the COVID-19 pandemic are being gradually introduced into the market, increasing supply. The delivery volume of container ships has fluctuated around 1 million Twenty-foot Equivalent Units (TEU) annually from 2020 to 2022, but it reached 2.3 million TEU last year and is expected to exceed 3 million TEU this year. According to Clarkson Research, a British maritime analysis firm, the annual delivery volume of container ships is projected to average 1.6 million TEU over the next three years.
Despite the declining cycle in the shipping industry, if the strong dollar (weak won) persists, the performance of shipping corporations is expected to remain robust. This is because the functional currency of the shipping industry is the dollar. Even if shipping rates decrease, if the value of the dollar increases, foreign exchange gains can be realized when converted to won. For example, using an average won-dollar exchange rate of 1307.8 won in September, if a shipment is made and $4,000 is received, applying the December exchange rate of 1435.33 won would result in an additional revenue of 9.8%.
HMM, the largest shipping company in South Korea, recorded a foreign exchange profit and loss of 2.08 trillion won in the third quarter of 2022, when the won-dollar exchange rate averaged 1391 won. In the first quarter of 2009, when the average won-dollar exchange rate was 1432 won due to the aftermath of the financial crisis, HMM recorded a foreign exchange profit and loss of 1.02 trillion won.
Moreover, the domestic container carrier, Heung-A Shipping, also recorded a foreign exchange profit and loss of 13 billion won in the third quarter of 2022, an increase of 184.5% compared to the same period last year. Korea Line also recorded a foreign exchange profit and loss of 165.1 billion won, up 245.6% during the same period. A researcher from Korea Investment & Securities noted, "The strong dollar trend is positive for the performance of shipping corporations whose functional currency is the dollar."
On the 23rd, the won-dollar exchange rate closed at 1452 won. On the 19th and 20th, the closing prices were 1451.9 won and 1451.4 won, respectively, surpassing 1450 won for three consecutive trading days. This is the first time the won-dollar exchange rate has exceeded 1450 won for three consecutive trading days since March 11-13, 2009, during the financial crisis. One industry official said, "While the increase in the exchange rate will boost book profits, it is expected that avoiding the downturn cycle caused by oversupply will be difficult."