What does bring lower Korean Won to shipping firms?

With gloomy prospects for the global economy and domestic businesses expected to spiral downward this year, companies and individuals are aggressively taking part in buying U.S dollars. The liberalization of the foreign money exchange act has made it easier to possess and purchase dollars.

The weakening Taiwanese and Philippine currencies have driven the won depreciation worse. Experts predict the won to surge to the 1,300 level against the dollar sooner or later. The dollar to Korean won rate rose to 1,259.70 from 1,145.40 won, a year earlier December 30th, 1999.

As the Korean Won goes up, shipping companies can enjoy increased profits with the same amount of cargoes. While income including shipping rates is 100% paid in dollars, 80% of those dollars go out in expenses, leaving 20% of the profits to shipping firms. It is reported that a 100 won increase would have produced about 220 billion won in profit on the basis of 11 billion dollars worth of rates earnings in 2000. Shipping lines also expect to gain favorable liquidity as the won hikes up.

On the other hand, shipping lines may encounter some trouble in raising funds and show bad management results. The won's depreciation could distort managing results, deteriorating shipping companies' financial structures, causing them to lose their credit ratings with foreign firms. For example, in 2000, shipping companies in Korea expected to earn a net profit of 500 billion won. However losses from won to dollar exchange were expected to be 1.52 trillion won, leaving them about 551.6 billion won in the red on P/Ls (profit-loss statement).

Amongst all that, governments tried to listen to the Korea Shipowner's Association and shipping companies to prepare countermeasures. One possible measure is to not calculate long-term foreign debts. A second is to postpone and later consider into exchange losses calculations of long-term exchange debts.