After the world’s biggest container capacity operator, Danish conglomerate A.P. Moller-Maersk, announced in late September that they were planning to break up their company into Transportation and Energy units, there has been intense speculations on Maersk’s takeover capacity of financially ailing Hyundai Merchant Marine (HMM), or of Hanjin Shipping after they filed for bankruptcy protection. On September 22nd, 2016, an executive container operator of Maersk Line mentioned that they were on the lookout for new acquisitions. The week following that statement, Hanjin’s shares rose more than 40% after the Maersk executive mentioned that acquisitions would be Maersk Line’s preferred growth option. “Buying Hanjin or HMM are rumors invested out of thin air. Maersk isn’t really interested in the Korean operators.” Said a source involved in the matter.
The Korea Development Bank, who is the largest creditor of the highly indebted HMM company, is currently working on a restructuring program for stabilization of the carrier and helping HMM improve their finances. From the looks of it, it seems that Korea Development Bank will be highly unlikely to sell HMM to a foreign buyer, since “The Korea government will fight tooth and nail to keep at least one national carrier. It’s a matter of principle to have a flag carrier moving Korean exports around the world.” Said another source that declined to be identified. Shipping industry analysts have stated that it makes no sense for Maersk to make a move on HMM while they are negotiating a place in the 2M shipping alliance made up of Maersk and Mediterranean Shipping Co., a Geneva-based company. If Hanjin is able to avoid liquidation, it is expected to emerge from bankruptcy protection as a much smaller regional Asian ship operator. “If Maersk swallows up Hyundai, customer retention comes into play. Cargo owners want to have a choice of carriers to spread their risk.” Says Lars Jenson, chief executive of Copenhagen-based SeaIntelligence Consulting. If HMM becomes a part of Maersk, customers will look elsewhere for a carrier to be able to shop for better rates. History shows, when Maersk bought Royal P&O Nedloyd, another container shipping company in 2005, it initially lost all of the latter’s trans-Pacific market share while trying to consolidate before finally gaining some market share back again after the dust settled.
Because of a delay in the Asian economy, overcapacity in the container shipping market, and jaw dropping low freight rates, HMM fell into serious debt and creditors took over control in June, 2016. HMM started restructuring the month after due to decreasing liquidity, low cash flows, and suffering from a large amount of debt. A few days after rumors started spreading that Maersk Line would acquire HMM and Hanjin Shipping, Korea Development Bank Chairman, Lee Dong-Geol stated, “We are working over the restructuring of the company, which could help the state-run bank to improve its financial health; but selling the firm to foreign buyer needs a cautious approach. We need to see a bigger picture like fostering Hyundai Merchant Marine into the nation’s flagship shipper.” Another source involved in the matter added, “Buying Hanjin or HMM are rumors invented out of thin air. Maersk isn’t really interested in Korean operators.”
With decreasing demand, overcapacity, and a continuing cycle of price wars that have slashed freight rates to well below break-even levels over the past two years, all carriers have suffered huge losses, and smaller carriers like Hanjin and HMM are struggling to survive. HMM is South Korea’s integrated logistics and containerized freight Transport Company with over 50 sea routes and more than 100 ports of call. HMM operates almost 140 vessels and is the world’s 15th largest container line in terms of vessel capacity, and together with Hanjin Shipping, moves almost 100% of all of South Korea’s exports. “The talk among top industry executives is that Maersk will wait for creditors of small carriers going bankrupt to knock on its door and discuss buyout deals at very low prices.” Mentioned a close source that asked not to be identified. Out of the top 20 carriers currently in play right now, executives with a long history in this industry expect less than half of the carriers to still be operating 10 years from now, and estimate collective losses to reach up to $10 billion this year.