The new head of South Korean flag carrier Hyundai Merchant Marine Co. is on a charm-offensive trip to Europe to cement the shipping line’s relations with bigger peers, but sealing a deal to be part of a major shipping alliance will be difficult.
HMM said Jae-hoon Bae, who became HMM’s president and chief executive last month, will meet this week with executives at A.P. Moller-Maersk A/S and Mediterranean Shipping Co., the world’s two biggest container ship operators by capacity and partners in an alliance that moves roughly a third of all containers globally.
The Korean line is an associate member of the 2M alliance but has less clout than the other two in decisions about capacity and routes, because some big customers insisted they didn’t want their cargo on Korean ships after the sudden collapse in 2016 of Korea’s Hanjin Shipping Co., then the world’s seventh-biggest container operator.
Mr. Bae wants HMM to become a full 2M member next year, a person with knowledge of HMM’s efforts said. “But the best thing he’ll probably get is another loose relationship or nothing at all.”
HMM’s tie-up with the bigger lines, which began in 2017, expires next April. HMM holds 1.8% of the global shipping market, according to research group Alphaliner—on par with several regional carriers, but a far smaller market share than the biggest operators, including Maersk and MSC, which control the world’s big trading lanes.
Being part of an alliance that would let HMM cut costs by sharing ships, cargo volumes and port calls with its partners would be a boon for the company at a challenging time.
The Korean carrier has accumulated around $1.6 billion in losses over the past three-and-a-half years and relies heavily on government support to stay afloat. HMM narrowly escaped default in 2017 thanks to a $660 million state bailout and received a further $5 billion last year to finance a series of orders for megaships and port assets to boost its capacity and compete with bigger rivals.
One of those deals—a $2.8 billion order for 20 ultra-large vessels struck in April 2018—infuriated 2M executives, who had asked HMM to restrict new orders because of overcapacity on the world’s biggest trade route from Asia to Europe.
A 2M senior executive described that ship order as “nothing less than crazy.”
HMM is already being gradually marginalized in the Maersk-MSC alliance, which last year signed a partnership with Israel’s Zim Integrated Shipping Services for U.S. routes and expanded that cooperation in January,
“Maersk and MSC can handle 2M without HMM,” said Lars Jensen, chief executive of Copenhagen-based SeaIntelligence Consulting. “They [HMM] don’t bring much to the table apart from some cheap slots and some big vessels which are unnecessary.”
“The big ships can’t be used in regional trades,” Mr. Jensen said. “HMM is too big for intra-Asia trades and too small for global shipping services, outside an alliance.”
The Korea Development Bank, HMM’s biggest creditor and its main angel in keeping the business from going bust, insisted that the company join a worldwide shipping alliance as a condition of its support.
There are two other rival groupings: the Ocean Alliance, consisting of China’s Cosco Shipping Holdings Co., France’s CMA CGM SA and Taiwan’s Evergreen Marine Corp. ; and THE Alliance, made up of Germany’s Hapag-Lloyd AG , Japan’s Ocean Network Express and Taiwan’s Yang Ming Marine Transport Corp.
“The Ocean Alliance is already dominant in trans-Pacific trades where HMM has a substantial presence and they don’t need another partner,” another person with direct knowledge of the matter said.
“As far as THE Alliance, they are increasingly concentrating on direct services, so sharing ships with yet another partner is likely no-no,” this person said.
Container ships move $4 trillion worth of manufactured goods a year, according to shipping executives. However, industry operators have been weighed down by overcapacity that has depressed freight rates and earnings for major carriers.
Source: Wall Street Journal