HMM reports $770 mn OP amid global shipping disruptions

[Courtesy of HMM Co.]

HMM Co. reported an operating profit of over 1 trillion won ($732.6 million) in the first half of 2024, boosted by soaring freight rates due to the Red Sea crisis and a surge in Chinese exports.

According to regulatory filings on Tuesday, HMM hit 2.66 trillion won in sales and 644.4 billion won in operating profit in the second quarter of 2024. Combined with an operating profit of 407 billion won in the first quarter, HMM recorded a total operating profit of 1.05 trillion won in the first half of this year. This marks a 2.2-fold increase compared to the same period in 2023 and surpasses that year’s 584.8 billion won operating profit.

The Red Sea crisis, which began at the end of 2023, seems to have had a significant impact on HMM‘s strong performance. As global shipping companies opted to sail around the Cape of Good Hope to Europe instead of using the Suez Canal, this increased travel distances and times, resulting in a steady increase in ocean freight rates. The U.S. government’s announcement that it would raise tariffs on electric vehicles, solar panels, and medical supplies from 25 percent to a maximum of 100 percent starting in August 2024 also led to a surge in exports from Chinese companies seeking to avoid the tariff, causing a sharp short-term spike in freight rates.

“With the ongoing Red Sea crisis, freight indices for the first half of the year jumped 2.3 times compared to the previous year. Our profit also increased due to strengthened profit-oriented operations coupled with rising freight rates,” the company explained.

However, it is uncertain whether HMM can maintain its strong performance as freight rates remain high thanks to declining export volumes from China and additional vessel capacity, particularly on routes to the Americas. Some industry insiders speculate that freight rates may have peaked based on the observation of declining freight rates in the typically high-demand third quarter. The Shanghai Containerized Freight Index (SCFI), a global sea freight indicator, peaked at 3733.80 on July 5th, 2024, and has been on a downward trend for five consecutive weeks. The latest SCFI, as of Friday, was down 12 percent from its peak to 3253.89.

Meanwhile, geopolitical risks in the Middle East, such as the growing threat of a full-scale war between Israel and Iran, and the possibility of a dockworkers‘ strike on the U.S. East Coast in October 2024 are also cited as factors that could affect freight rates.