HMM enters strategic cooperation with 2M alliance

HMM enters strategic cooperation with 2M alliance
The deal will boost 2M in the Transpacific trades

Hyundai Merchant Marine (HMM) has made a strategic cooperation agreement with Maersk Line and MSC, the two members of the 2M alliance, although the leading Korean carrier has failed to become a fully-fledged member.

Earlier this year, HMM’s creditors requested the company’s entry into an alliance agreement as a condition for restructuring its debt.

The cooperation is a combination of slot exchanges and slot purchases between the three parties, as well as Maersk Line and MSC taking over a number of charters and operations of vessels currently chartered to HMM.

A statement by HMM claimed that the methods of cooperation are similar to the ones adopted by the O3 Alliance, adding that the strategic cooperation “has exclusivity against other alliances, and it is binding on all parties which can file with the FMC [Federal Maritime Commission]”.

The agreement is scheduled to begin in April 2017 subject to regulatory approval. The initial term of the cooperation is three years with option to extend and covers key East-West trades.

The cooperation is outside the scope of MSC and Maersk Line’s 2M vessel sharing agreement, although it will provide HMM access to the 2M network.

According to HMM, the agreement was for only for an initial three-year term, which is shorter compared to common alliance contracts, because “a long-term contract may prevent [HMM] from growing into a global carrier under limited circumstances including restriction of new vessel orders”.

For Maersk Line the cooperation will provide new opportunities, not least in the Transpacific trade where 2M gets access to strong HMM products.

The parties expect to disclose more information about network changes and schedules in early 2017.

According to shipping analyst Drewry, given the news of the strategic cooperation agreement, “we must assume that HMM’s creditors were agreeable to the non-alliance membership deal they had previously mandated, and from the little detail that has been published, they understand that the company will be smaller in stature for the foreseeable”.

The analyst said: “HMM was left without much bargaining power after a traumatic year and this agreement was probably the best it could hope for. While it will be diminished in the short term it does at least give it the space to grow in the future.”

The analyst argued that while it appeared from the outset that HMM had more to gain from joining the alliance given the conditions set out by its creditors, bringing in a third member with financial problems could have led to some reputational damage for the 2M members.

Drewry added that reports claiming HMM could become a full 2M member in a few years if it can heal its balance sheet imply that financial risk was a major consideration.

“But even if that box is ticked it’s hard to see how such a junior partner would be able to secure equal footing,” the analyst said.

HMM has been in talks to join the 2M alliance since June this year.