Carrier Conundrums: HMM, the 2M Alliance and Korea Line

The 2M Alliance, composed of the two largest containership operators, Maersk and MSC (Mediterranean Shipping Corporation) reportedly announced today it will not admit Hyundai Merchant Marine (HMM) as a full partner in the agreement but will explore other options such as slot exchange or purchase agreement. Lloyds List reported Maersk as saying, “The parties are therefore discussing the possibility of HMM partnering with the 2M network through a slot exchange and purchase agreement. The partnership discussions are ongoing and include the possibility of Maersk Line taking over charters and operations of vessels currently chartered to HMM with the aim of deploying them in the 2M networks. The discussions include how we can improve our products on the Pacific trade.” Since cutting a deal in March and avoiding bankruptcy, South Korea’s Hyundai Merchant Marine (HMM) has anticipated joining the largest of all shipping agreements, the 2M Alliance, composed of the two largest containership operators, Maersk and MSC (Mediterranean Shipping Corporation). While HMM is a fraction of the size of the two giants, it nevertheless appears a good fit. HMM has maintained the position that in either late November or early December a “formal agreement” would be inked in respect to the VSA (vessel sharing agreement). However, last week, Maersk threw a spanner into the formalities. The Danish mega-carrier, in a widely reported statement on the agreement talks, noted, “Since July 2016, 2M has been in discussions with the Korean container shipping line, Hyundai Merchant Marine (HMM), on HMM joining the 2M vessel sharing agreement (2M VSA). The parties have discussed the possibility of HMM joining 2M as an operating partner and now decided to look at other cooperation possibilities… The parties are therefore discussing the possibility of HMM partnering with the 2M network through a slot exchange and purchase agreement.” The Hanjin experience What happened to change the nature of the talks? In a nutshell Hanjin happened, or more correctly, the South Korean court’s decision to award the assets of the bankrupt Hanjin to a comparative unknown Korea Line. Ironically Korea Line, South Korea’s second largest bulk-shipping operator, itself filed for bankruptcy protection back in 2011. In 2013, the 29-ship Korea Line was bought by the Samra Midas Group (SM Group), a Korean construction and manufacturing company. While most shipping analysts expected Hanjin’s assets to be absorbed by HMM, Korea Line reportedly simply offered a better bid. According to a report in the Korea Times, the SM Group offered a price of Won 225 billion (US$190,179 million), including a Won 165-billion (US$139 million) capital increase and a 60-Won billion (US$51 million) debt assumption for Hanjin. The assets include offices and networks, five 6,500 TEU vessels and a 54% stake in Total Terminals International (TTI) in Long Beach terminal with the remainder of the terminal owned by MSC. Interestingly, in late August the SM Group also assumed controlling interest in another bulk ocean carrier, Samsun Logix, buying the shares from Hong Kong based debt trader SC Lowy. These moves beg the question, with an aggressive parent in the SM Group looking for fire sales, is Korea Line poised to become a genuine player in the future? Early returns would say no, but there are reasons not to dismiss the possibility. Future Deployment Even with the 2M announcement, it’s unclear as to exactly how the deployment would work – Maersk taking over the vessels and operating them within the 2M network or some slot exchange on a mutually agreed services and routes. And it is never easy, even in stellar market conditions, for the mouse to negotiate with two elephants, as is the case with HMM and the 2M Alliance. Still HMM has already weathered the worst of the storm and with larger containerships on the way could find the elusive, right alliance fit. And from another perspective, much of what has transpired (including the Hanjin bankruptcy) happened under the aegis of a South Korean Government, which acted uncharacteristically against the tradition of support for the industry – a situation that could very well change. If it does, Korea Line’s prospects might look very different. And the ultimate cure all for carrier conundrums is an upturn in 2017.