The U.S. global financial crisis in September 2008 and the European financial crisis in 2012 lead the world real economy and financial sectors to facing the overall crisis. The collapse of the financial markets of the United States expanded to the world's financial markets, stiffening up funds as the shipping industry is also experiencing a liquidity crisis. There are numerous shipping companies that are at risk of bankruptcy while massive restructuring is taking place in all over the world. Whenever the shipping industry faces risks such as the 2nd oil shock financial crisis or Shipping industry rationalization measures in the past, the Korean government and related enterprises has overcome the crisis with strong cooperations and desperate efforts. In order to prevent the repeatable crisis, it is crucial to check the fundamental system and build a sustainable growth system.
Shipping industry is one of the most important industries in Korea since domestic market is weak and dependance on trade is high. more than 90% of the import and export cargo are transported by shipping companies. Korea operates various fleets as the world's fifth based on 2010. There are the world's No. 1,2,3 shipbuilding companies in Korea. Korea in owning ships ranks the fifth of the world. However, the Korean shipping finance can not be seen from any of the ranks. Capital intensive industries such as shipping, shipbuilding and offshore plant are closely related to Shipping finance from the beginning to the end.
The biggest challenge of the shipping companies as the most typical capital-intensive industry is to collect funds, whereas that of the financial institutions is to secure mortgage.
The purpose of the enactment of mortgage scheme is to protect the creditors by rationalizing the ship mortgages that can be seen as the most appropriate means of long-term credit when shipping companies collect funds, to expand export base to eventually enable the ship finance the development of the national economy. Additionally the methods of financing as collateral ships has uniquely developed in the field of maritime law, ship mortgage forms its major axis with maritime lien. Commercial law, however, apply such ship mortgage to the provisions of the real estate mortgages, causing the deficiency of legislation have been running.
First of all, this paper diagnose potential risks from mortgage of under-construction ships and problems of ship mortgage upon introduction of foreign-owned ships. Especially, I will study the risk for post-collateral acquisition related to mortgagee as ship mortgage, methods for ship mortgage acquisition, methods of hedge against the maritime lien.
Through those diagnosis, I will explain ways of management plan for registered ships for the credit risk of the ships under construction and ways of management plan for acquiring foreign-owned ships for complementary mortgage of maritime lien, in order to minimize the mortgage risks as movable assets at the same time to activate shipping finance industry.
By researching ways to minimize the risk of the garden as collateral newbuilding dry during dry more systematic and reliable ship mortgage loans challenges that run the risk of domestic financial institutions for collateral ships and blocking factors in advance of the technology as a result of the research was to relieve the ship purchase and procedures on the biggest challenges to the tenets of domestic small and medium-sized shippers. Therefore, the risk of collateral ships complement of financial institutions to deal with the domestic ship financing shipbuilding export and shipping companies, as well as the financial incentives to the purpose of this study to the qualitative growth of the Korean shipping industry development.
This paper explains the solutions the most challenges for small and medium shipping companies in Korea to run a more systematic and reliable ship mortgage loans in procedures as well as for financial institutions in Korea to prevent to potential risks from ship mortgages.
Finally, the purpose of this study is to provide the financial institutions about how to reduce the risks of ship mortgages, so that how they can provide financial incentives to shipping companies and also contribute to export the ships and to the qualitative development of overall Korean shipping industry.