Ocean carriers entering the market in 2010 and 2011 had a tough time, but SM Line said it believes it is timing its entrance into the transpacific market well, noting how freight rates are improving.
SM Line, a new South Korean ocean carrier that is scheduled to launch its first transpacific service from Asia next month, said it will offer fast transit times and “premier customer service.”
However, the carrier is entering a crowded market despite last year’s bankruptcy of Hanjin Shipping, some of the assets of which have been acquired by SM Line.
For example, fellow South Korean ocean carrier Hyundai Merchant Marine (HMM), which signed a space swap agreement with Maersk Line and MSC this week, said it will have 50 percent more capacity when it begins service next month on the transpacific than it did when it was a member of the G6 Alliance.
In a presentation being provided to potential customers, SM Line also emphasizes the financial stability it obtains from being part of the SM Group, a conglomerate that is also the owner of Korea Line, a large operator of bulk ships.
SM Line will call the SSA-operated Pier A at the Port of Long Beach when it begins its new service in mid-April. For a fee, SM Line customers will have the option to have their containers drayed to the off-dock container yard in nearby Carson, which is run by SSA Marine’s sister company, the Shippers Transport Express, where containers are available for pickup 24 hours a day, seven days a week without appointment.
SM Line said it plans to use five 6,500-TEU ships on its transpacific service, and will offer a 10-day transit from Busan to Long Beach, a 12-day transit from Shanghai to Long Beach, and a 14-day transit from Ningbo to Long Beach.
In addition, SM Line said it believes it is timing its entrance into the transpacific market well, noting how freight rates are improving. Spot freight rates on March 16 from Shanghai to Los Angeles were eight percent lower than a week prior, but 60 percent higher than a year earlier, according to London-based shipping research and consulting firm Drewry.
A memorandum of understanding signed with the City of Busan and the Busan Port Authority will also provide “financial and development support” to SM Line, the company said. SM Line said it will invest over $77 million in container terminals in Kwangyang and Incheon.
Lars Jensen, chief executive officer and a partner at SeaIntelligence Consulting in Denmark was the former director of marketing and IT at The Containership Company (TCC), a small start-up that tried to enter the transpacific container market in April 2010, but withdrew a year later. He believes SM Line’s plans are “very much a carbon copy of what we saw in 2010-2011 and it is done on a backdrop of almost similar conditions” when TCC and several other companies tried to start new transpacific services and failed.
In addition to TCC, those other companies included:
• Hainan PO, which operated from August 2010 to December 2011 and was joined by TS Lines for a time, and later continued using chartered space from China Shipping and COSCO;
• Grand China Logistics, which operated from April 2011 through the end of that year;
• Horizon Lines, which operated a service between the West Coast, Guam and China between December 2011 and November 2011;
• And Matson, which in 2006 began a service between China and Long Beach as the eastbound leg of a string from Long Beach to Hawaii and Guam, and also tried to add a second China string in August 2010, but cut back to one string again after a year.
“The majority of these launched transpacific services on the back of the same two things we have now: a rapid increase in spot rates over a period prior to launch, and the availability of very cheap assets on the charter market,” Jensen said.
“What happened to all the upstarts in 2010-2011 was that not very long after all of them launched, the market crashed. There was a major freight rate war among carriers that emerged at the time which basically meant that all of these upstarts at the end of the day simply did not have the financial strength to weather such a storm,” Jensen added.
SM Line “needs to have very, very deep pockets or they need to hope that we will not get a replay of the freight rate war back in 2010-2011,” he added.
In addition, Jensen said SM Line has a good product in terms of transit time, but not a unique product.
In addition to its transpacific service, SM Line is starting up the following intra-Asia strings:
• The Korea-Japan Express (KJX), using one 1,000-TEU ship operated by SM Line with a rotation of Busan, Tokyo, Yokohama, Kobe, Kwangyang and Busan;
• The Vietnam-Thailand Express (VTX), using three 1,300-TEU ships operated by SM Line with a rotation of Busan, Shanghai, Ho Chi Minh, Bangkok, Laem Chabang, Ho Chi Minh, Yantian and Busan;
• The Korea Haiphone Express (KHX), using two 1,000-TEU ships operated by SM Line with a rotation of Busan, Hong Kong, Haiphong, Xiamen, Inchon, Kwangyang and Busan;
• And the West India Service (WIN), which will use 250 TEUs of space chartered from X-Press Feeders’ WIN service, which has a rotation of Shanghai, Ningbo, Shekou, Singapore, Port Klang, Nhava Sheva, Pipavav, Colombo, Port Klang, Singapore, Vung Tau, Hong Kong and Shanghai.
Jensen said that Busan is an ideal location for SM Line to transship cargo between those intra-Asia services, but noted that other carriers can do this as well.
SM Line hopes to attract non-vessel-operating common carriers and medium-sized beneficial cargo owners as customers, but Jensen said one issue the company faces is cargo “downfalls” from shippers that book space on vessels, but then fail to show up with the cargo.
While downfalls are rampant in the container industry, Jensen said they tend to be an even bigger issue for start-ups. “One of the challenges for all the guys who launched back in 2010 was that in 2011, we ran smack into a price war,” Jensen said. “That, of course, raises the question, what will happen in 2017, and in my view, there is a significant risk of a price war in 2017.”
While carriers don’t want a repeat of 2016 when the majority lost money, he said the fact that the major carriers are reorganizing themselves into new alliances next month could come into play because most carriers will probably have targets for volumes and market shares.
“It doesn’t require more than one or two carriers to get the feeling that they need to assert themselves in this new hierarchy of alliance, and then we will have a trade war on our hands,” he said. On the other hand, if carriers decide to avoid a price war and let SM Line fill up its ships by using price to attract customers, other opportunists may be emboldened to try and start-up new transpacific services.
