As global container shipping profits continue to soar, traditional dry bulk operators are increasingly drawn to the lucrative market. SW Shipping, a South Korean company specializing in bulk cargo transportation, is preparing to enter the container shipping sector next year with a new coastal route connecting Korea to Vietnam, marking a significant diversification of its business operations.
Strategic Expansion Plans
SW Shipping CEO Kang Seong Hun recently signed a memorandum of understanding with the Gangwon Provincial Government, Donghae Port Authority, and Donghae Regional Office of Oceans and Fisheries. The agreement outlines plans to launch container shipping services from Donghae to Ho Chi Minh City by June 2023. The company also intends to establish routes connecting Donghae with Russia's Vostochny and Vanino ports later in the year.
Profit-Driven Market Entry
The container shipping industry's record-breaking profitability has been the primary driver behind SW Shipping's strategic shift. Initial discussions about establishing container routes began in March 2022 with Donghae regional officials. Research indicates that direct shipments from Donghae to Vietnam could reduce inland transportation costs by up to 20% for local shippers and consignees, significantly improving regional trade competitiveness.
Phased Growth Approach
The company has adopted a measured expansion strategy. SW Shipping plans to focus on coastal shipping services for several years to build operational expertise in container transportation before targeting the highly competitive trans-Pacific trade market around 2030. This gradual approach aims to mitigate risks while ensuring sustainable business development.
Investment and Fleet Preparation
To support its container shipping ambitions, SW Shipping has allocated approximately $241 million for the purchase of two secondhand 1,000-TEU container vessels. The company also plans to acquire 4,000 containers through purchases or long-term leases to ensure adequate equipment availability.
Target Markets and Potential
The carrier will primarily serve cargo from South Korea's Gangwon Province and Seoul metropolitan area, which collectively account for 70% of Korean exports to Vietnam. SW Shipping aims to capture a portion of the 600,000-TEU annual trade volume between Korea and Vietnam through its direct shipping services.
Financial Backing
The expansion plan has received strong support from Korea Ocean Business Corporation, the state-owned ship financing provider. This institutional backing provides financial security and reduces capital costs, enhancing SW Shipping's market competitiveness.
Market Challenges
Peter Sand, chief analyst at freight analytics firm Xeneta, cautions that new market entrants face multiple hurdles. Establishing excellent operational services requires strong partnerships with ports and terminals. Purchasing vessels at market peaks demands careful consideration of loan-to-value ratios and utilization rates. Additionally, marketing services to a completely different customer base than dry bulk presents unique challenges.
Sand recommends that new operators focus on building long-term relationships with reliable clients to ensure steady cargo volumes and cash flow, while maintaining participation in spot markets.
Financial Foundation
Despite these challenges, SW Shipping enters the container market from a position of financial strength, having recorded $3.28 million in net profit during 2020. Through prudent investments and efficient operations, the company appears well-positioned for success in its new venture.