Hyundai Merchant Marine enters into limited cargo deal with 2M Alliance

SEOUL – Hyundai Merchant Marine said it had reached an agreement to form a cooperative relationship with the world's largest container-shipping alliance – a deal that falls short of full-fledged membership.

Under the deal, Hyundai will share surplus capacity and purchase cargo slots with the shipping network, called the 2M Alliance, which is made up of Denmark-based Maersk Line and Switzerland-based Mediterranean Shipping Co. and moves one-third of all seaborne cargo.

"This tie-up falls short of what we expected, but nevertheless the agreement amounts to an alliance because we're guaranteed exclusivity in cargo sharing with the 2M members," the South Korean company said.

Slot purchasing is common among carriers, even between members of competing alliances. Maersk, for instance, has a number of such deals with France's CMA CGM and Germany's Hapag Lloyd AG, the senior members of two rival groupings that directly compete with 2M.

Shipping executives said that while the slot-purchase agreement will give Hyundai greater access to the 2M network such deals are favorable when demand is on the rise and operators pay to move containers on each other's ships when they don't have enough space to move cargo on their own vessels.

But with the industry coping with the worst down-cycle in 30 years, most operators are struggling to fill up their ships.

"There is no way to sugarcoat that Hyundai Merchant Marine has not achieved solid terms to weather the weak market at an alliance level and likely will soon have to assess its strategy again," said Basil Karatzas of New York based Karatzas Marine Advisors & Co.

More important, people involved in the deal said Maersk will be taking over five ships that Hyundai has chartered from independent shipowners. This will strip some risk from Hyundai as it will no longer have to honor charter obligations if the market continues to deteriorate.

"This will be a relief for Hyundai creditors and shareholders," Mr. Karatzas said.

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

The cooperation is outside the scope of MSC and Maersk Line's 2M vessel-sharing accord, yet will provide HMM access to the 2M network.

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

"We are pleased to enter into this strategic cooperation with Hyundai Merchant Marine. It will enable us to enhance our 2M network and presence" in trans-Pacific trade, said Maersk Line Chief Operating Officer S&Toft.

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

"If Hyundai's financial health and business performance improve during the three-year period, our partnership will be converted to full-fledged membership," a spokesman for Hyundai said.