Korea’s SM Line aims to partner with HMM on trans-Pacific

Korea’s SM Line aims to partner with HMM on trans-Pacific

SM Line will be expanding services to the United States and Europe "in the near future." Photo credit: SM Line

Predictions that SM Line will need partners as it expands into the highly competitive trans-Pacific market appear to be proving correct, with the carrier announcing that it hopes to work with larger Korean rival Hyundai Merchant Marine on the trade in 2018.

At a celebration of SM Line’s first anniversary, CEO Kim Chil-bong said the carrier was preparing to start a second service to the US West Coast and would consider collaborating with HMM, although HMM told Fairplay, a JOC.com sister publication, that it had not received such a request. HMM is the No. 9 carrier for US imports from Asia, with a market share of 5.7 percent through November, up from 4.7 percent in the corresponding period of 2016, according to PIERS, a sister product of JOC.com within IHS Markit. SM Line controlled 1.2 percent of the Asian import market.

In a recent interview with JOC.com, Soo Cheon Lee, co-founder and chief investment officer at investment bank SC Lowy, said SM Line would have to find partners on the trans-Pacific if it was to maintain its competitive edge. Lee is intimately familiar with the carrier’s parent, with SC Lowy selling its equity stake in Korea Line to SM Group several years ago.

He 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 after Hanjin Shipping went bankrupt, and that gave it a significant competitive edge in container transportation.

Because SM Line was able to buy secondhand vessels at the lowest part of the cycle while its competitors bought their ships brand new four or five years ago, the unit costs of SM Line vessels were cheaper, although smaller in container carrying capacity. However, Lee said this competitive edge would not last forever because a vessel was a depreciating asset, which was why SM Line was looking for 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.

SM Line is also making moves to strengthen its financial base. In January, the carrier’s merger with another SM entity, Woobang Construction, will be completed. Combining SM Line and Woobang Construction will give the merged company $550 million in assets.

SM Line Corporation is close to breaking into the world’s Top 20 global container carriers, with 10 weekly services and an aggregate capacity of more than 100,000 TEU. The carrier has four services in the intra-Asia trade (one of which as a slot charterer), two in the Asia-India trade (both as slot charterers), two feeder services, one to the Middle East, and one in the Asia-West Coast North America trade that was scaled back from an initial plan to operate two trans-Pacific loops.

The carrier is planning to launch its second trans-Pacific service to the US Pacific North West, as well as services to the US East Coast, Australia, North Europe, the Mediterranean, and the Red Sea “in the near future.”

Contact Greg Knowler at greg.knowler@ihsmarkit.com and follow him on Twitter: @greg_knowler.