Hapag-Lloyd, Five Asian Liners Form New Shipping Alliance

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[UPDATE – Bloomberg] Hapag-Lloyd AG, Germany’s top container shipping line, and five Asian carriers will form a new vessel-sharing alliance to take on bigger rivals amid a glut in capacity that’s depressed freight rates.

The partners will include Japan’s Kawasaki Kisen Kaisha Ltd., Mitsui OSK Lines Ltd., Nippon Yusen KK, South Korea’s Hanjin Shipping Co. and Taiwan’s Yang Ming Marine Transport Corp., the Hamburg-based company said in a statement. Called ‘The Alliance,’ it will control 18 percent of the world’s container shipping fleet with more than 620 vessels and a combined capacity of 3.5 million standard twenty-foot containers, or TEU, according to the statement.

Global shipping lines are regrouping to compete more effectively against market leaders A.P. Moeller-Maersk A/S and Mediterranean Shipping Co. that are allied under the 2M partnership, which controls 28 percent of the market, according to Alphaliner. They also have to contend with Chinese operators as the government consolidated operations of two major state-controlled groups, China Ocean Shipping Group and China Shipping Group.
Weak Group

“It’s a grouping of the weak,” said Minoru Matsuno, president of a Tokyo-based investment advisory firm Value Search Asset Management Co., referring to the new shipping alliance. “Given the size of Maersk and the Chinese shipping lines, the companies in this new group need to review their strategy. Otherwise I am very skeptical about their ability to survive.”

Merger talks between Hapag-Lloyd and United Arab Shipping Co. SAG are progressing, and “it is anticipated” that UASC will become part of the new alliance, helping increase the total capacity of this partnership to more than 4 million TEU, according to the statement. Hapag-Lloyd is seeking to sign a deal by mid-June, a person familiar with the matter said Thursday.

The Alliance, agreed for a five-year term, is scheduled to commence operations in April 2017 after regulatory approvals.

Nippon Yusen, Mitsui OSK and Hapag-Lloyd are all currently part of the G6 Alliance, which will cease to exist next year, while Hanjin Shipping, Kawasaki Kisen and Yang Ming belong to the CKHYE alliance that also includes Cosco Container Lines Co. and Evergreen Marine Corp Taiwan Ltd.
Hyundai Merchant

CMA CGM SA, the world’s No. 3 carrier, and three other major lines signed a preliminary agreement to form a new group called the Ocean Alliance, which could become the second biggest after Maersk Line’s 2M partnership with Mediterranean.

France-based CMA CGM is taking over Singapore’s Neptune Orient Lines Ltd. and plans to bring the latter’s container operations unit APL under the Ocean Alliance. That will mean the partnership could have 26 percent of the market, according to figures from Alphaliner.

Hyundai Merchant Marine Co., which is now part of the G6 Alliance, said in a separate statement Friday that once its business is normalized, it plans to complete the necessary processes to join The Alliance before September.

Shares of Hyundai Merchant, which is currently working with its creditors to restructure its debt, fell 9.8 percent, the biggest decline in more than two months, in Seoul trading on news it won’t be part of the new grouping.

Hapag-Lloyd, which has a fleet of 175 vessels, reported a first-quarter loss of 43 million euros ($49 million) as a 20 percent year-on-year drop in freight rates outweighed cost cutting measures, it said in a separate statement on Friday. The carrier plans to rein in costs by a further “high, double-digit million dollar amount” with a new program, it said. For the full year, Hapag-Lloyd still expects an increase in operating profit.

EARLIER REPORT:

A new alliance involving some of the biggest Asian and European container-shipping operators will be unveiled by Friday, closing a circle of new partnerships that will dominate the movement of global cargo, two people involved in the matter said.

“The new alliance will include most or all of the global carriers left out of the two other groupings already announced,” one of the people said. “Anyone left out in the cold will have to concentrate on smaller, regional trades.”

The vessel-sharing deal is expected to involve the Japanese trio of Nippon Yusen Kabushiki Kaisha, Kawasaki Kisen Kaisha Ltd. and Mitsui O.S.K. Lines Ltd.; Germany’s Hapag-Lloyd AG; South Korea’s Hanjin Shipping Co. and Hyundai Merchant Marine Co.; and Taiwan’s Yang Ming Marine Transport Corp.

“The carriers have been in talks over their alliance plans with U.S., Chinese and European regulators and an announcement is expected by Friday,” the second person said.

U.S. Maritime Commissioner William Doyle said this week that a new alliance is in the works, but declined to give details.

Last month, CMA CGM SA and China’s Cosco Group, the third-largest and fourth-largest shipping lines by capacity, said they would form the Ocean Alliance, pulling in Hong Kong’s Orient Overseas Container Line and Taiwan’s Evergreen Marine Corp. The move unraveled other pacts, triggering a new round of deal-making to share vessel space.

Maersk Line, the A.P. Moller-Maersk A/S shipping unit that is the world’s biggest container line by capacity, is teamed up with No. 2 carrier Mediterranean Shipping Co. in the 2M alliance. Those two carriers together hold about 28% of the world’s container-ship capacity, according to industry data firm Alphaliner, although only specific ships and trade circuits are included in the alliance agreements.

Container ships move more than 95% of the world’s manufactured products, which include everything from electronics, clothing and toys to cars, furniture and food.

Being part of an alliance has become imperative for the industry, which is marred by a 30% oversupply of vessels in the water and rock-bottom freight rates—well below break-even levels for much of the past two years. Alliance partners share ships, networks and port calls that cut their costs by hundreds of millions of dollars annually.

Cutting costs by more than 30% is also a must for Hanjin Shipping and Hyundai Merchant Marine, currently undergoing widespread restructuring by main creditor Korea Development Bank to avoid going bankrupt. The two carriers move almost all of Korea’s exports.

Hapag-Lloyd is in separate merger talks with Dubai-based United Arab Shipping Co. UASC will either be part of the new alliance or join in after the completion of the merger talks, the people said.

Nils Andersen, chief executive of A.P. Moller-Maersk, said in a conference call on the company’s first-quarter earnings last week that “small and midsize companies will need to consider their strategy very radically…if they’re not in an alliance that has a future.”

“Either they will have to consolidate in an alliance and give the best possible offer to the customers or they will have to concentrate on very few long-haul routes or on a local regional activity,” Mr. Andersen said.
Source: Wall Street Journal

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