HMM may take over Hanjin’s terminals, bulk ships via ship fund

HMM may take over Hanjin’s terminals, bulk ships via ship fund

Oct 21, 2016: According to the shipping industry, Hyundai Merchant Marine (HMM) decided to take part in a preliminary bid which will finish receiving letters of intent (LOIs) in order to take over Korea-Americas routes from Hanjin Shipping on October 28.

The court announced a plan to sell off Hanjin Shipping’s sales network covering Asia and the Americas on October 14. Its affiliates, some of its containerships and its logistics systems among other will be put for sale. Excluded from the sale list were overseas terminals such as LA Long Beach Terminal shared by Hanjin Shipping and MSC, a Swiss shipping firm.

HMM’s position is to consider taking over additional assets that can create synergies if shipping market situations improve in the long term apart from assets that can reinforce its sales networks now. To shipping firms, terminals have intangible symbolism which can eclipse their symbolism as valuable assets. This is because shipping firms with base terminals can receive more trust not only from the shipping industry but also from consignors.

“Long Beach Terminal of Hanjin Shipping is the most valuable core of the west of the US along with a nearby terminal which belongs to Maersk,” said a representative of the shipping industry. “Consignors have no alternative to favor shipping firms with terminals since shipping firms with terminals can offer stable loading and unloading services.”

At the moment, Hanjin Shipping owns Gwangyang Terminal and Gyeongin Terminal in Korea and five overseas terminals such as Long Beach Terminal in LA of the US, Antwerp Terminal in Belgium and Algeciras Terminal in Spain. In particular, Algeciras Terminal is called attractive infrastructure as the terminal is located at a hub port that links North Europe, the Mediterranean Sea and Africa. Hanjin Shipping owns 25% equities in Algeciras Terminal.

If HMM takes over Long Beach Terminal and Algeciras Terminal, the shipping company will secure base ports on an east-west line that connects Asia and the Americas and a north-south route that links Europe and Africa and Asia.

If HMM takes over Hanjin Shipping’s Asia-Americas sales network which ranks fourth (a 7% share) in the world shipping market, it will equip HMM a world-class sales network. But many experts are skeptical about a possibility of acquiring it. First of all, the value of the network is plunging sharply. “I am not sure whether or not HMM particularly needs to take over the Korea-Americas route from Hanjin Shipping at a time when fares are at the bottom,” said a representative of the shipping industry. “Moreover, core human resources left the route of Hanjin Shipping, damaging its sales network a great deal.”

Another problem is how to raise funds to take it over. HMM posted 417 billion won in operating loss in the first half of this year and its business conditions such as a drop in fares are deteriorating, exacerbating its cash flow. It is virtually impossible for HMM to acquire the route without creditors’ financial support. Financial regulators and the Korea Development Bank are jibbing at injecting additional funds into HMM. This is because it cannot be justified for them to give financial support to HMM since they put Hanjin Shipping under court receivership under the principle of “no additional financial support.”

Some experts are concerned that although HMM is scheduled to join the 2M Alliance, the shipping company may receive disadvantages in the distribution of routes among others.

Under these circumstances, via a ship fund, HMM is attempting to solidify its position in the 2M Alliance, not to mention the expansion of its size and securing core ports. General financial firms can take part in ship funds. Thus such funds can reduce a burden on the government that has to increase the competitiveness of HMM as a major Korean shipping company. Private financial firms take part in 60% of a ship fund as prior investors. Government-run banks including the Korea Development Bank account for 30% only. The remaining 10% comes from HMM.

HMM sold off its regular exclusive bulk ship service division as part of its self-rescue efforts. The shipping company still owns a bulk ship fleet including five oil tankers which operate irregularly. In the case of bulk ships, they are stable now that they have relatively fewer shippers than containerships and most of them are under long-term contracts. This means that it will be effective in the short term for HMM to raise its competitiveness in the bulk ship sector as HMM’s shipper network is not enough compare to that of Hanjin Shipping. Therefore, it is forecast that new vessel orders will be placed via a ship fund to buy bulk ships rather than containerships. On the other hand, some experts say that it played the roles of a variable in the 2M Alliance’s reinforcing the Asia-Pacific route based on mammoth-sized containerships. “The 2M Alliance that will begin joint operations with HMM next year already owns an enough number of super-sized 14,000-TEU vessels,” said a representative of the shipping industry. “Taking its relationship with the 2M Alliance into account, HMM will face its limit in increasing the number of outsized containerships.”

Source: Business Korea

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