[Editorial] Shipping modernization

By Korea Herald

Coastal shipping industry needs restructuring

  • Published : May 6, 2014 - 20:33
  • Updated : May 6, 2014 - 20:33
One thing the government should do to prevent maritime accidents similar to the Sewol ferry disaster is modernize the domestic coastal shipping industry.

The capsizing of the ferry off the southern coast three weeks ago demonstrated that the government has done little to tackle the industry’s chronic problems, which were exposed more than two decades ago.

In October 1993, the ferry Seohae sank off the western coast, killing 292 of the 362 passengers and crew on board. Just like the Sewol tragedy, it was a manmade disaster. The crew operated the vessel while ignoring safety regulations.

For instance, on the day of the accident, the weather conditions were unsuitable for passenger ferry operations, but the ship’s crew simply ignored them. Furthermore, the number of passengers on board was well in excess of its capacity of 221.

The Seohae ferry disaster brought into focus the problems plaguing the coastal shipping industry. But the Sewol tragedy painfully reminds us that these problems remain unresolved.

Just like 20 years ago, most coastal shipping companies are small and in poor financial shape. The Korea Ocean and Fisheries Institute says that 44 of the nation’s 67 coastal shipping firms are capitalized at 1 billion won or less. Their average debt-to-equity ratio stands at 453 percent, with many funding their operations with debt.

Due to their precarious financial situations, these firms cannot buy new ships. They usually purchase used vessels from abroad. As a result, most of their ships are old and outdated.

A tally of the Korea Shipping Association shows that about two-thirds of the nation’s 217 coastal liners in operation are old: 69 are between 15 and 19 years old and another 67 are even older than that.

To make ends meet, shipping companies also engage in illegal practices, such as cargo overloading and reducing ballast water to below required levels to save on fuel. These malpractices make their vessels more vulnerable to accidents.

So any attempt to prevent future ferry disasters should involve an overhaul of the coastal shipping industry. In the first place, the government needs to help shipping companies modernize their fleets.

Currently, domestic shipbuilders do not construct passenger ferries because doing so is unprofitable. It is necessary to find ways to take advantage of their world-class shipbuilding technologies.

One option that deserves consideration is to introduce a program in which the government and shipping companies jointly finance new ferry construction by domestic shipyards.

Under this program, the government and shipping firms would jointly own the newly built vessels. Shipping firms would then buy out the government’s stakes with the profits earned from the operation of the new ships.

The plan, if implemented wisely, would not only help local shipping firms modernize their worn-out fleets, but also provide domestic shipbuilders with an opportunity to foster a new line of business.

To revamp the coastal shipping industry, the government is also advised to promote mergers among firms that serve unprofitable routes and subsidize, if necessary, the operations of the newly created companies.

At the same time, it is necessary to upgrade the infrastructure required to make coastal shipping safer. The government should expand ports, set up more maritime traffic monitoring centers and improve emergency management systems.

The government’s investment in the coastal shipping sector will not only enhance maritime safety but also provide a boost to marine tourism. Korea’s coastal tourism holds big growth potential, as the nation has a relatively long coastline dotted with 3,200 islands.