Hanjin Cutting its Losses

Drewry Maritime Research
Monday, January 20, 2014
Source: Drewry Maritime Research

Drewry’s weekly container insight report shows exits from the transatlantic and Asia-Black Sea trades demonstrate how Hanjin is prioritizing financial repair over global coverage.

Drewry said cash-strapped Hanjin Shipping has recently announced to its customers that it will be leaving two unprofitable trade lanes. The South Korean carrier will cease taking slots on the Asia‐Black Sea Express (ABX) service of China Shipping, Yang Ming and Wan Hai, and from April / May will pull out of the transatlantic market, where it operates one 4,367 teu ship (Hanjin Pheonix) on the CKYH Alliance and Evergreen TAE loop (dubbed NTA by Hanjin).

The exit will end nearly a decade of service in the transatlantic for Hanjin, having first entered the trade in early 1995. It is not yet known how its erstwhile partners will cover Hanjin’s departure.

While Hanjin’s involvement in both trades has only been marginal, the move is symptomatic of a carrier that has been forced to curb its ambitions for global port coverage by persistently weak financial performances.

Hanjin’s CEO Kim Young Min recently resigned following a run of four consecutive quarterly losses in the container division totaling $239 million and the news that the company had to borrow KRW 150 billion ($141m) from sister company Korean Air to alleviate “temporary” liquidity problems.

Drewry Maritime Equity Research (DMER) last year identified Hanjin and its South Korean counterpart Hyundai Merchant Marine (HMM) as being particularly vulnerable as they have failed to generate enough cash flow to meet their operational needs and instead relied heavily on short term debt capital from the local markets.

Since 2011 Hanjin has registered net losses every quarter until 3Q13, leading to a massive erosion in its book value and financial health. While its 9M13 net losses stood at KRW 432.8bn (USD 391mn) versus KRW 360.1bn (USD 316mn) in 9M12, its book value per share has declined 84% between 2008 and 9M13.

Sustained losses for more than two years accompanied by the burden to meet capital expenditure for fleet restructuring have taken a toll on Hanjin’s balance sheet. While Hanjin’s net debt has swelled from KRW 6.2tr (USD 5.7bn) in 1Q11 to KRW 8.2tr (USD 7.6bn) in 3Q13; its net debt to equity ratio has ballooned from 2.4x to 8.8x during the same period.

Hanjin’s cash balance, as evident from the chart below, declined from KRW 592bn (USD 470mn) in 2008 to KRW 382bn (USD 356mn) at the end of 9M13.

Hanjin plans to raise KRW 1.97tr partly from sale of assets and partly through loans. The amount raised will be used to repay loans. The company aims to repay KRW 1.25tr and KRW 1.08tr of loans in 2014 and 2015 respectively.

Korean Air, which is an affiliate of Hanjin Shipping, had to step in and made a commitment of providing KRW 100bn as financial aid to the group to ease its liquidity pressure which is in addition to KRW 150bn money paid in October. Korean Air is further willing to help Hanjin with a promise to buy KRW 400 bn of new shares that Hanjin plans to sell next year.

To avoid a liquidity crisis, Hanjin has been disposing of some of its assets including a partial sale of its bulk business through a new joint venture with Hahn & Company. The agreement will secure KRW 300bn of cash for Hanjin as well as transfer debts of KRW 1.4tr to the joint venture, enabling it to reduce its debt and improve balance sheets with this additional liquidity.

DMER believes that, with container shipping still grappling with challenges, Hanjin is likely to continue to post losses even this year, as the industry has yet to show any signs of recovery. In spite of the accelerating efforts to ease cash shortages, DMER remains skeptical about the turnaround prospects of Hanjin as overcapacity is likely to plague the industry for at least another two years, even if there is a gradual recovery.

According to Drewry, other financially troubled carriers will look to follow the example of Hanjin and pair back their networks, with their peripheral trades the first to go. Maintaining global market coverage is now something only the carriers with the deepest pockets can afford.

drewry.co.uk
 

  • Source: Drewry Maritime Research

    Source: Drewry Maritime Research

  • Source: Drewry Maritime Research

    Source: Drewry Maritime Research

  • Source: Drewry Maritime Research

    Source: Drewry Maritime Research

  • Source: Drewry Maritime Research

    Source: Drewry Maritime Research

  • Source: Drewry Maritime Research

    Source: Drewry Maritime Research

  • Source: Drewry Maritime Research
  • Source: Drewry Maritime Research
  • Source: Drewry Maritime Research
  • Source: Drewry Maritime Research
  • Source: Drewry Maritime Research
Maritime Reporter October 2014 Digital Edition
FREE Maritime Reporter Subscription
Latest Maritime News    rss feeds

People & Company News

Gazprom Transgaz Ufa Organizes Arts Festival

Over 200 healthy children and children with disabilities from Bashkortostan as well as the Volga Region participated in the Breaking the Barriers second interregional children’s arts festival,

President Pryor Retires from ExxonMobil Chemicals

Stephen D. Pryor, president, ExxonMobil Chemical Company and vice president of Exxon Mobil Corporation, has elected to retire on January 1, 2015, after more than 44 years of service.

Steven Palazzo Visits HII, Newport

Huntington Ingalls Industries today hosted Rep. Steven Palazzo, R-Miss., for a tour of the company's Newport News Shipbuilding division. Palazzo represents the fourth district of Mississippi,

Finance

Time-out for Kwanza Drilling

Statoil has decided to cancel the Stena Carron rig contract after fulfilling the work commitments in the Statoil-operated blocks 38 and 39 in the Kwanza basin offshore Angola.

Oil Deal Between Iraqi Kurdistan & Baghdad Welcomed

The United States welcomes an agreement between Iraq's central government in Baghdad and its northern Kurdistan region over the management of oil exports, U.

Nigeria to Cut Petrol Subsidy by Half

Nigeria plans to cut subsidies on petroleum products by half next year after sharp falls in global crude prices, spurred the government to revise its 2015 budget downwards,

Container Ships

Sea Star Line: Equipment Replacement Plan on Track

Company Receives New Refrigerated Containers and Places Order for New Genset Equipment   Sea Star Line, LLC began receiving the first of its new 100 40’ and 45’

October Imports up 9% at Port of Oakland

Containerized imports shipped through the Port of Oakland were up 9.17% in October from a year ago, the port said, citing the surge as the biggest jump in import cargo volume in six months.

Video: Reefer RoRo Ship Design Rebooted

Expanding on the Reefer RoRo Ship design release in September last year, naval architects group Knud E. Hansen A/S has continued the development of the new Reefer RoRo Ship design with version II.

News

7 Rescued from Sinking Freighter Near Haiti

Seven crewmembers were rescued after their 100-foot coastal freighter began taking on water and sank approximately 45 miles north off of Cap Haitien, Haiti, Friday.

Gazprom Transgaz Ufa Organizes Arts Festival

Over 200 healthy children and children with disabilities from Bashkortostan as well as the Volga Region participated in the Breaking the Barriers second interregional children’s arts festival,

Time-out for Kwanza Drilling

Statoil has decided to cancel the Stena Carron rig contract after fulfilling the work commitments in the Statoil-operated blocks 38 and 39 in the Kwanza basin offshore Angola.

Logistics

October Imports up 9% at Port of Oakland

Containerized imports shipped through the Port of Oakland were up 9.17% in October from a year ago, the port said, citing the surge as the biggest jump in import cargo volume in six months.

Cost to Fuel Ships Falls

For a ship that burns 24 tonnes of fuel per day while steaming, fuel costs are reduced by as much as $1 million a year if current price level stay put. Assuming

Asia Tanker, VLCC Rates Could Climb

Charterers to release 30 Middle East VLCC cargoes next week. VLCC market buoyed by upbeat Suezmax, Aframax sectors. Rates for very large crude carriers (VLCCs)

 
 
Maritime Contracts Maritime Security Maritime Standards Naval Architecture Navigation Pipelines Salvage Ship Simulators Sonar Winch
rss | archive | history | articles | privacy | terms and conditions | contributors | top maritime news | about us | copyright | maritime magazines
maritime security news | shipbuilding news | maritime industry | shipping news | maritime reporting | workboats news | ship design | maritime business

Time taken: 0.2201 sec (5 req/sec)