Container Analytics: Hanjin, HMM charters cause for concern?

   Just a few months ago, this column examined the potential merger between struggling South Korean container lines Hyundai Merchant Marine (HMM) and Hanjin Shipping (March 2016 American Shipper, “Who’s next for liner M&A?,” page 30), and the effect it would have on carrier marketshare by capacity. Although both carriers, as well as the South Korean government, remain steadfast in their position that a merger isn’t even on the table to begin with, speculation continues to run rampant around the industry that the companies will be forced to combine, or at the very least cooperate heavily, in order to survive the recent downturn in trade demand and container freight rates. As part of their respective debt-restructuring deals, both firms have been negotiating with shipowners in an attempt to reduce charter rates as a way of bringing down operating costs.
   Following a recent report in Business Korea suggesting HMM could be asked to combine with Hanjin in order to gain entry into a new six-carrier east-west vessel-sharing agreement called THE Alliance, a spokesperson for HMM told American Shipper that although it does not comment market speculations, “the alleged merger between HMM and another Korean shipping company is a groundless rumor.”
    The Korean Ministry of Oceans and Fisheries also issued a press release regarding the merger rumors in which it said “Hanjin Shipping and HMM are progressing with their restructuring process through charter negotiations and debt adjustment. Therefore, considering a merger between the two companies at this very moment is not only premature but also inappropriate, [as there are] many significant and important discussions at present in order to normalize the companies’ businesses.”
   One aspect of this situation that isn’t being discussed much, if at all, is what happens if these charter rate renegotiations fail and either company’s creditors decide to reject their respective restructuring plans. If they are indeed intent on avoiding a merger, and either firm files for receivership, it will be up to the court to decide whether to continue to restructure its debts or begin selling off assets to attempt to pay them. In the event this takes place, shipowners could potentially choose to seize back their own assets, along with any cargo currently on board, in lieu of payment from Hanjin or HMM.
   Just to be 100 percent clear, this won’t necessarily happen, but shippers should be aware that it is a risk they run when booking cargo on services that operate with HMM and Hanjin charter vessels. This includes both individual service offerings, as well as those of the G6 Alliance in HMM’s case and the CKYHE Alliance for Hanjin.
   The adjacent chart, built with data from BlueWater Reporting’s Carrier Vessel Registry Report, compares the number of chartered containerships Hanjin and HMM currently operate, as well as the combined overall capacity of those vessels. At present, Hanjin has 51 ships on charter with a combined capacity of 324,459 TEUs, while HMM charters 34 vessels with a combined capacity of 228,383 TEUs.    According to BlueWater Reporting, of the 51 Hanjin-operated vessels currently on charter, 20 of them currently serve on CKYHE Alliance services between Asia, North Europe and North America and three more are scheduled to join CKYHE loops but are not presently deployed. Interestingly, two of Hanjin’s charter vessels actually participate on a service operated by Hanjin in conjunction with the G6 Alliance carriers, while the other 26 sail on non-alliance services.
   For ships chartered by HMM, 13 presently serve on G6 Alliance loops in the major east-west trade lanes, 15 operate on non-alliance strings, and six are not deployed. Of the 13 currently serving G6 Alliance loops, however, six operate on the group’s transpacific Central China 1 (CC1) service, which is due to be suspended in late June due to insufficient demand. Three more will be removed from the G6 Alliance’s Asia-Europe Loop 5 service and another non-charter HMM vessel will be phased out of Loop 4, all in favor of OOCL ships, in an apparent attempt to mitigate these risks. (For complete, up-to-date lists of Hanjin- and HMM-operated charter vessels, including the ships’ owners and services on which they operate, contact BlueWater Reporting.)
   In all likelihood, no Hanjin or HMM vessels will be arrested—HMM, for its part, said in early June it expected an “imminent announcement” regarding its charter negotiations—and they will proceed with their debt-restructuring plans with or without a merger. That being said, shippers need to be aware of this possibility and plan accordingly, especially if they have regularly recurring shipments carried on Hanjin’s or HMM’s chartered ships. Or, in the words of the inimitable Hitchhiker’s Guide to the Galaxy: Don’t panic, and always carry a towel.