South Korea’s SM Line Corporation is about to break into the world’s Top 20 global container carriers just six months after being launched, with nine weekly services and an aggregate capacity of almost 100,000 TEU.
The rapidly expanding shipping line now owns 18 ships of 99,800 TEU, with another five vessels totaling 6,000 TEU on charter, Drewry noted in its Container Insight Weekly.
The analyst said that in the six months since the start of operations in March, SM Line has grown its operations so quickly that it now offers a total of nine weekly services — six in the Intra-Asia trade (one of which as a slot charterer), two in the Asia-India trade (both as slot charterers) and one in the Asia-West Coast North America trade, scaled back from an initial plan to operate two trans-Pacific loops.
More services will follow as SM Line aims to boost its current 50,000 TEU operated capacity at least four-fold, with new services inked for the “near future” that will connect Asia to the Pacific Northwest, the US East Coast, West Coast South America, Australia, the Middle East and Red Sea.
It has been a remarkable ride for the subsidiary of South Korean conglomerate Samra Midas Group (SM Group), a manufacturing and construction company that also owns bulk carrier Korea Line Corporation that was acquired in 2013.
As Hanjin Shipping collapsed, SM Line managed to snap up the stricken carrier’s trans-Pacific assets for just $23 million, as well as acquiring 11 former Hanjin container ships and two terminals in Gwangyang and Inchon. The bargain prices paid for Hanjin’s vessels allowed SM Line the ability to compete against rivals deploying larger ships with lower unit costs.
Soo Cheon Lee, co-founder and chief investment officer at SC Lowy, an investment bank that sold its equity stake in Korea Line to SM Group several years ago, said SM Line’s growth strategy was built around entering container shipping at the right time, finding a niche market, and especially buying its vessels at good prices.
Lee said even though SM Line was a small player, it had managed to pick up its vessels at the lowest prices seen in 20 years, and that gave it a significant competitive edge in container transportation.
“The main reason the 18,000-plus TEU ships are coming into the market is because they offer cheaper costs per unit,” Lee told JOC.com. “But because SM Line was able to buy their secondhand vessels at the lowest part of the cycle, and their competitors bought their ships brand new four or five years ago, the unit costs of SM Line are cheaper, even though their vessels are smaller in container carrying capacity. Now six months later they have made 30 to 40 percent capital gains on those ships.”
However, Lee said this competitive edge would not last forever because a vessel was a depreciating asset, and he accurately predicted that SM Line would need to find partners.
“SM Line will need to find ways to increase its capacity and keep operating expenses down, and that is going to be the long-term challenge. That is going to be when they start looking for partners,” he said.
On Aug. 29, Samra Midas group announced that is merging SM Line Corporation, Korea Shipping Corporation, and Woobang Engineering & Construction to alleviate the financial burden on SM Line and assist in its international expansion. The merger will expand SM Line’s capital, improve its cash flow and credit standing, and once completed, the carrier will have $1.07 billion of assets and a debt ratio of 200 percent.
Drewry concluded that SM Line would not become a rival to the elite global lines in the short-to-medium term, but its rapid trajectory suggested that it would find a niche in the medium-size category.
Contact Greg Knowler at email@example.com and follow him on Twitter: @greg_knowler.