해운기업의 외환손익 영향분석과 대응방안에 관한 실증연구(국적 외항선사를 중심으로)

Abstract

Abstract

An Empirical Study on the Effect Analysis of Foreign Exchange Gain & Loss and Counter-measures in the Korean Shipping Logistics Industry

Kim, Rae-Bog

Major in Department of Port

Logistics

Graduate School of Marine

Finance and

Logistics, Korea Maritime And

Ocean

University

In South Korea, the shipping industry is a national principal sector where a large volume of raw materials, products, etc. are transported to remote places at a low cost to support international trade. The sector accounts for 94% of the national export/import cargo volume and has provided affordable and timely transportation service even when the shipping environment was uncertain, contributing Korean enterprises’ enhanced competitiveness.

Shipping industry is mainly characterized as being international. Its major operating activity is shipping transportation thus, sailing income and marine transport cost are generated in multiple countries around the world. For this reason, the sector is sensitive to international foreign exchange fluctuation.

Shipping industry, despite being a service industry, is in a capital-intensive structure requiring huge capital investment to own vessels. Most of the shipping enterprises tend to rely on foreign currency loans with lower interest rate rather than own equity capital to invest in large vessels. Accordingly, large-scale gain and loss on translation of foreign currency are occurred depending upon foreign exchange fluctuations. National shipping companies are hugely influenced by such gain or loss in their profit/loss structure and external reliability.

In this consideration, the study seeks to examine national shipping firms’ management situation and empirically analyze factors affecting foreign currency related losses and gain or loss on foreign currency translation. The study also aims at enhancing the external competitiveness by suggesting appropriate accounting practice for foreign currency translation, which can reduce the effect on financial statements of gain or loss on foreign currency translation in order for improved external reliability of their financial statements and exchange risk hedging.

First, management analysis was performed on 85 enterprises for 4-year data from 2010 to 2013 based on the materials on national shipping firms’ management characteristics, existing research trend, literature study and the financial data of Korea Shipowners Association.

Second, it is planned herein to understand the effect on the foreign currency related losses of national shipping companies, produce financial ratio indicators and find out those with higher correlations.

Third, the national shipping firms’ growth potential, profit generation, financial stability and asset efficiency are compared with those of regular manufacturing companies to analyze the differences and produce financial factor estimated to have correlation.

Forth, it is planned herein to converge the financial statements of national shipping firms to functional currency and find out the effect of functional currency on gain or loss on foreign currency translation.

Fifth, the mutual influence among financial ratios is researched herein through the panel analysis by selecting variables highly associated with foreign currency-related loss of 9 financial factors of the national firms.

National shipping companies’ financial data between 2007 and 2013 were analyzed as follows

Sales size, vessel size, equity capital rate, loan dependency and total investment efficiency were found to have no stronger than 1% influence on foreign currency related losses against sales amount. The sales increase rate was found to be significant at no higher than 5% levels.

First, as for the scale factors, sales increase rate showed a negative correlation to foreign currency related loss. This is because as firms with higher sales growth tend to have a better ability to pay for debt and interest, such firms repay debt vulnerable to forex changes as well as interests marked in foreign currency.

Third, concerning the financial structural aspect, the equity capital ratio and loan dependence showed a negative correlation. This can be interpreted that the higher the equity capital ratio, the lower the loan amount to face smaller foreign currency related losses from loan in foreign currency. Loan dependence can be viewed to be attributable for the nature of borrowed capital composition. Such a phenomenon can appear if forex change-sensitive long-term borrowing in foreign currency decreases among the debts of shipping firms while the short-term borrowing increases for more liquidity This is mainly because the long-term borrowing was reduced due to continuous ship selling, etc. amid worldwide economic slowness after the recent financial crisis whereas, to add more liquidity, the short-term borrowings ruse raoudly.

Forth, among the asset efficiency factors, the total asset investment efficiency showed a negative correlation with foreign currency related losses. This means that the higher the total capital investment efficiency, the better the asset management efficiency to reduce forex fluctuation-caused loss/gain ratio on foreign currency translation.

To sum the findings, larger shipping firms owning more vessels tend to have a higher risk to be exposed to foreign exchange risk due to the fluctuation whereas those with lower sales growth and lower equity capital ratio have a higher risk of such exposure as well.

The foreign currency related losses increase with the ratio of long-term borrowing. Deep-sea fishing firms operating vessels along routes with high vessel management or, that is, less profitable routes are deemed likely to have a bigger forex risk.

Compared with other industries, national shipping companies cannot help but being exposed to high financial risks and foreign exchange fluctuations in terms of their sales performance. In this situation, they are required to adopt a foreign currency translation accounting method. Thus, it is expected that, by applying the current forex law based on the idea of functional currency, forex risk-caused financial statement reliability deterioration is prevented and it is viewed as a proper accounting practice in line with the international accounting standard.

In terms of growth potential analysis, compared with normal manufacturing business, their fluctuation was wider. This is because the shipping firms have higher fixed cost regarding the noncurrent assets owned for long-term return on investment or sales activities than other manufacturers. Total asset increase rate, tangible asset increase rate, current asset increase rate and sales increase rate show a similar movement to the changes in seaborne transportation market conditions to some extent. The inventory asset of oils was found irrelevant to such market conditions.

Fifth, the relationship between the financial factors reflecting domestic shipping firms’ management characteristics and foreign currency related loss to sales amount was analyzed with STATA statistical program to diagnose factors affecting forex risk.

Regarding the profitability analysis, thanks to the booming economic situation in the shipping industry from 2007 to 2008, companies came to own more vessels and that led to increased profit. In 2009, due to the slowed world economy, transportation volume fell along with the fees, dropping sales and revenue at the same time. Compared with normal manufacturing firms, the loan interest increased by about 1.7 times, being the main cause of lower profitability.

Concerning the stability analysis, the debt ratio was about 7-times higher (663.8%) than normal manufacturers. This is because the firms bought vessels with loaned funds. Their dependence on loans was also 1.4 times more than the manufacturing industry average of 25% to record 35%, stronger loan dependence.

As for the asset efficiency, the total asset turnover was 0.65, lower than the manufacturing sector average of 1.07, signaling more inefficient investment activities such as over investment.

The sales credit turnover way about twice higher than other manufacturers because sales credit collection is faster in the shipping industry.

The panel analysis was conducted on national shipping firms registered with the Korea Shipowners Association. Of them, 85 firms that continued business from 2010 to 2013 were studied. Total sample number is 340 for the corresponding 4 year period.

For a dependent variable, the foreign currency related losses to sales amount was set, a main indicator measuring foreign currency related gains or losses. For independent variables, financial ratios dealt with in general financial theories, were set by centering on analysis indications utilized for corporate management analysis that yearly performed by the Bank of Korea. The financial ratios were selected first based on audit reports and then dealt with the correlation analysis with foreign exchange rate compared to sales amount as well as collinearity diagnosis for the final selection. The results are as follows