Sinokor Merchant Marine is accelerating a business restructuring as it pushes to sell container ships and secure a large number of very large crude carriers (VLCCs). With container ship freight rates sluggish, it is shifting to crude transport, where the market outlook is brighter.
As VLCC rates are expected to strengthen with major oil producers expanding output this year and demand rising for long-haul routes, Sinokor Merchant Marine's business shift is likely to have a positive impact on profitability. In addition, there is an outlook that the recent situation in Venezuela will also act to push VLCC rates higher over the mid to long term.
According to the shipping industry on the 24th, Sinokor Merchant Marine is working to secure more than 30 VLCCs through recent secondhand ship purchases and charter (leasing a ship) contracts. The secondhand ships the company is seeking to buy total 19, including 14 300,000-DWT (deadweight tonnage, the maximum total weight a vessel can carry) VLCCs in progress with Norwegian and Belgian shipping companies.
The size of the secondhand ship sale and purchase deals Sinokor Merchant Marine is pursuing is known to total $1.8695 billion (about 2.7584 trillion won), and U.K. shipbroker Gibson said, "Considering that the value of the 15-year-old VLCCs Sinokor Merchant Marine is buying typically stands at $59 million to $60 million, it is 10% to 15% higher."
In addition, Sinokor Merchant Marine has secured around 14 VLCCs by extending existing contracts and signing new charters with global commodity firms including Trafigura. The industry expects that once the company finalizes the secondhand purchases and charter deals it is pursuing, its VLCC operating fleet will exceed 100 ships.
Given that Sinokor Merchant Marine operates about 75 container ships (slot capacity 140,000 TEUs), the VLCC fleet would surpass its container ship fleet in size. The company also runs a tanker business through subsidiaries including Heung-A Shipping.
This aggressive expansion of Sinokor Merchant Marine's VLCC fleet is being pursued alongside a downsizing of its container ship business. From August last year through the end of last year, the company sold six container ships, and it is currently negotiating a bulk sale of 30 container ships to MSC.
The shipping industry believes Sinokor Merchant Marine moved to shift businesses as profitability declined due to falling container freight rates on its core intra-Asia (Korea, China, Japan and Southeast Asia) routes.
Sinokor Merchant Marine's sales in 2022 were 4.9264 trillion won with an operating profit of 1.802 trillion won, but in 2024 sales were 3.4019 trillion won and operating profit 543 billion won, down 31% and 70%, respectively.
According to the Korea Ocean Business Corporation (KOBC), the freight index (KSEI) for routes from Busan to Ho Chi Minh City, Jakarta and Singapore was 1,509 at the end of 2022 but fell about 36% to 963 at the end of last year.
The freight index (KCI) for China routes and the freight index (KJI) for Japan routes stood at 50 and 214, respectively, last year; compared with the end of 2022, KJI fell from 817 to less than one-third, and KCI dropped from 247 to about one-fifth.
By contrast, VLCC rates are on the rise. The average freight for a 270,000-ton VLCC running between the U.S. East Gulf region and Ningbo, China, in the third quarter of last year was $8.45 million, up 15.2% from a year earlier.
Furthermore, there are projections that VLCC rates could rise further due to the recent situation in Venezuela. The United States, which ousted the Nicolás Maduro regime, said it will increase Venezuela's current crude output of about 1 million barrels per day and sell 50 million barrels of crude that Venezuela has stockpiled because it could not sell under economic sanctions.
Given that Venezuela once produced up to 3 million barrels per day and that normal trade would inevitably increase long-haul VLCC demand, this acts as a factor pushing rates higher. It could therefore be a boon for Sinokor Merchant Marine, which is pursuing a restructuring centered on VLCCs.
A shipping industry official said, "It is unclear how quickly Venezuela will increase crude output, but it is certainly a positive for the crude tanker market," adding, "Demand will grow beyond the portion occupied by the 'shadow fleet' (vessels that carry goods for countries unable to engage in normal transactions due to economic sanctions), and rates appear likely to rise."