Since South Korea's Hanjin Shipping collapsed almost four months ago, the container routes on the Pacific between the Far East and North America's west coast have become a battleground for carriers, where several analysts have named the 2M alliance between Maersk Line and MSC as the winners of the greatest freight volumes.
Analyst agency Alphaliner writes that the Pacific will remain a battleground in 2017. Maersk and MSC will continue to expand their network with two new services to the US West Coast with an expansion of the Maple service with a total of six vessels of 5,900-7,200 teu, which was launched on Dec. 9. The other service with the name Sequoia began sailings on Dec. 26 with five vessels of 5,000-8,400 teu.
Maersk Line and MSC's aggressive expansion of the two carriers' capacity on the Pacific, where Maersk Line has historically played a much smaller part compared to the routes from Asia to Europe, seems to emphasize the problems, according to Alphaliner, faced by economically struggling Hyundai Merchant Marine (HMM), which is the 2M alliance's new strategic partner.
The South Korean carrier did not successfully achieve inclusion in Maersk and MSC's 2M alliance, but had to settle for a looser strategic partnership, which goes against the carrier's and the South Korean government's goal for HMM to take part in one of the four major container alliances in 2017. An alliance partnership, where carriers share vessels (Vessel Sharing Agreement, VSA) was also one of the two most important parameters for majority shareholder and state-owned bank Korea Development Bank in ensuring the survival of HMM, while Hanjin Shipping is currently headed towards bankruptcy.
Unrealistic growth plan
Senior management of HMM instead announced an ambitious growth plan on Dec. 12 with more than a doubling of the carrier's capacity in the global container market, which is the equivalent of a market share of five percent in 2021 up from 2.2 percent today. But the plan, according to Alphaliner, seems highly unrealistic and corresponds to an increase in fleet capacity of 140 percent over the next four years.
"In order to achieve its targeted market share, HMM would need to add over 650,000 teu of additional capacity by 2021 – a tall order, given that the carrier is currently not engaged in any newbuilding program," assesses Alphaliner:
"To put HMM's target in perspective, the additional capacity required to reach a 5 percent market share is equivalent to acquiring the entire operated fleet of Hanjin Shipping prior to the carrier's collapse in late August. Hanjin's fleet has meanwhile dwindled from over 620,000 teu at the beginning of 2016 to only 44,000 teu of idled capacity currently, with HMM failing to pick up even a single Hanjin ship during the period. HMM also lost the bid to acquire Hanjin's transpacific network to Korea Line."
Korea Development Bank (KDB) had the option of merging HMM and Hanjin Shipping as a pan-Korean brand, but instead the national bank now looks poised to inject more money into HMM in order to reclaim lost market shares, writes Alphaliner.
Senior management at HMM stated at a press conference recently in Seoul, that despite of not being part of the 2M alliance, the customers' focus was on efficient service and not on whether a carrier is an alliance member or not.
"Our market share in the west coast of America rose to fifth place this year from 11th place last year. Hyundai Merchant Marine is eight and nine times smaller than 2M member companies, but we ranked fifth place on the west coast route, and Maersk sixth. This proves that Hyundai Merchant Marine has been trusted," said CEO Yoo Chang-keun, emphasizing that the carrier is planning to increase capacity from a current 450,000 teu to somewhere in the range of 800,000 to one million teu in the coming years, which corresponds to a total market share of five percent in 2021.
HMM's senior management took the opportunity to criticize Maersk Line and MSC for using the media to create a negative image of Hyundai Merchant Marine during negotiations concerning the South Korean carrier's relationship with the alliance, just a few days after the parties' announced a strategic partnership.
"Until some time ago, 2M has said to us, 'You are on your own as the alliance is a matter of interpretation.' 2M does not allow us to use the name of the alliance to weaken HMM's position after finding out that conditions for the self-rescue plan include becoming a member of a shipping alliance," said Lee Sang-shik, head of the Container Planning Division.