South Korean shipyard Daewoo Shipbuilding & Marine Engineering Co. and national flag carrier Hyundai Merchant Marine posted weak results in the second quarter, raising concerns about their future business despite repeated state bailouts.
Second-quarter net profit at DSME, the world's third largest shipbuilder by capacity, slumped 80% from a year ago to $183 million, despite a raft of orders, mostly tankers, since the start of the year. The yard made a profit of $587 million in 2017 after six straight years of operating losses and executives are hoping to end 2018 with a strong showing to set up the business for sale, people with knowledge of the matter said.
For the year so far, the yard's net profit is down 71% on a drought of orders for offshore drillships and intense undercutting by Chinese competitors for other types of vessels. DSME got a $2.6 billion state bailout last year and Chief Executive Jung Sungleep said in June his goal was to make it “an attractive company for other companies to be interested in acquiring.”
“They are looking to sell it to Hyundai Heavy Industries or Samsung Heavy Industries as early as next year,” one person involved in the matter said. “They've got an order book of 85 vessels, which is good, but after a brief recovery late in 2017, shipping is again on reverse and orders will weaken.”
Lars Jensen, CEO of Copenhagen- based SeaIntelligence Consulting, said the order trend is for smaller vessels like container feeder ships in the medium term, which command tighter profit margins than bigger vessels.
The situation is more precarious for container ship operator Hyundai Merchant Marine Co. Ltd. The carrier, which commands just 1.8% of global container capacity, is struggling to increase its volumes and stay relevant in a market controlled by much bigger rivals.
“They are pursuing volume growth, which is costing them dearly,” Mr. Jensen said. “HMM's volumes grew 17% in the second quarter, seven times more than much bigger (German) rival Hapag-Lloyd which lost $25 per container. HMM lost $169 per container.”
Higher volumes means less price control and with freight rates already well below sustainable levels, HMM's future hangs in the balance. The operator is too small for any scale advantages and the company's ships are too big for niche markets, like intra-Asia sailings, that have been a bright spot in an otherwise depressed container shipping market.
The deteriorating results are a blow to government officials who have hoped HMM would pick up the country's shipping banner following the demise of Hanjin Shipping, which was the world's eighth largest container carrier when it went bankrupt in 2016 before folding last year.
The carrier, which got a $660 million rescue package last year, had a loss of 243 billion won ($215 million) in the second quarter, compared with a year-earlier loss of 174 billion won.
HMM in June revealed a massive $2.5 billion ship order consisting of 20 vessels that can move from 14,000 to 23,000 containers.
BY COSTAS PARIS