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Maersk, MSC & HMM: accident waiting to happen?

Maersk, MSC & HMM: accident waiting to happen?

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If you believe executives of the three parties to the MoU, this is the deal that will have the major impact on the global service capabilities of the original 2M alliance. In reality, what was a well-oiled, tightly integrated alliance of two equals, Maersk and MSC, is now looking like an alliance of 2 bears and a baby bear.

As intellectually compelling as this might seem, the three companies have not yet sold to the market a strong, compelling reason for this match-up. In fact, the strongest ‘thumbs up; so far came from Lars Jensen at SeaIntelligence Consulting, rather than the business strategy and planning experts at Maersk or MSC.

This whole situation reminds me of my times in the software industry, when SAP started dancing with Retek to tackle the problems of the retail supply chain and execution. Just when SAP had reached out for the chequebook, along came Oracle and paid over the top for what, in essence, was a software company with dated software trying to keep up with the modern face of retail. What happened after that? Well, the business of retail automation has not progressed greatly due to the efforts of Oracle+Retek, and SAP ended up going after some leftover accounts in the retail industry with their own solution.

How is that story relevant to the 2M+HMM deal? My thinking is that the Ocean Alliance move by CMA CGM, which tied up the old-new Chinese carriers and OOCL, took Maersk and MSC totally by surprise. It swept away the prize by picking up the reasonably profitable China-US West Coast trade lane. The risk of forming an unfriendly beachhead was erased by CMA CGM’s acquisition of APL. Imagine where that has left the 2M strategists?

Left on the scene were two potential targets that could potentially be claimed as a consolation prize by Maersk and MSC. Enter the two companies on life support, courtesy of the Korean taxpayers: Hanjin and HMM. With their relatively small own fleets, unpleasantly high leases on charters, but a steady trade flowing out of Korea or transhipped from north China through Korea, they must have looked quite attractive to anybody squinting their eyes hard enough. When Hanjin jumped into the embrace of the revamped THE Alliance, the end game became clear. The only dancer left waiting to be invited for a spin was HMM. There you have it.

What are the business strategists and economists to make of this deal? One can try to put multiple positive spins on the 2M decision, but the reality is that the current strong, transparent partnership-of-equals grouping Maersk and MSC gets a partner that does not match, either in scope or size, the rest of the alliance. In fact, the 2M+HMM alliance unleashes economic forces that might be hard to sustain, especially for HMM. Why?

Within the alliance, besides the slots, you bring to the table your costs, but you get the rates of the alliance. If barely profitable rates take up your precious slots that otherwise you could have sold higher, you have to accept the loss of margin. It might as well be, that the mass market rates negotiated by 2M will deny any upside in HMM’s margins, simply because HMM might have no choice, but to keep their capacity utilisation high by servicing the 2M orders. If you don’t believe this to be the case, check out the recent interview with the new CEO of Maersk. There was plenty of stress on growing the revenues and not much mention of yields.

Can someone venture to put on the ‘light at the end of tunnel’ version of this deal?

Well, it could be simpler than you think. Let’s assume that the Korea Development Bank takes up the losses on outstanding HMM debts and graciously picks up part of the charges on the charter leases. Once those are out of the way, suddenly HMM becomes a small, vibrant carrier ready to be bought out and seamlessly merged into either Maersk’s or MSC’s structure. Case for the seemingly odd MoU closed and we have a happy ending. And how would Hanjin look at such development? Oh, well. An interesting topic for another article here on Splash.

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Kris Kosmala

Kris Kosmala is vice president for Quintiq Asia Pacific. Quintiq is the fastest-growing provider of optimization software solutions for supply chains and logistics.

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2 Comments

  1. James Thatcher
    July 18, 2016 at 1:02 pm

    I would counter this slightly – What happens if HMM is purchased by someone NOT in the 2M? Then you have Maersk and MSC stuck without someone to fill their slots that they were relying on, and will need to divert vessels to pick up the slack.

    What no one wants to admit is that it is HIGHLY possible that you could have another party come into the dance and throw things out on it’s ear. Look at the air cargo industry, people are sweating bullets when they found out that Amazon (a non-player) purchased (or will purchase) a rather substantial stake in Atlas Air (one of the largest cargo airlines). What would happen if an outsider came in and looked at the market, looked at what was happening with vessel charter agreements, and then saw an opportunity to really push the bar forward? If the 2M were going to right out purchase HMM and divvy up the assets, then that would be a different story – but they don’t want to take the risk – but what if someone un-conservative comes in and wants to “disrupt” the carrier market more that we know? And how would that effect the other carriers?

  2. chas deller
    July 18, 2016 at 8:16 pm

    This is Chas Deller – Consultant of 10XOCEANSOLUTIONS.INC
    Maersk have an issue with Panama Canal – listen to Soren Skou at the 2015 TPM interview with Peter Tirschwell ( its on you tube ) https://www.youtube.com/watch?v=t3CrD8cRUNQ ,(” we will do whatever makes economic sense” re Panama) – 2M have a relatively small TPEB /TPWB market share and whilst having HMM in the mix will not make a huge impact, it does allow them to market a service without using their own fleet. (Big steel ).
    They by linking with HMM (if they survive the next few months) they ‘ appear ‘ to be in the TP game. Philosophically , in the past , (when HMM were solvent and rates were higher)HMM were similar to Maersk, in so much as they targeted ‘ higher priced ‘ ‘PREMIUM’, BCO traffic – in theory it allows Maersk to continue to drive out operating costs by allowing HMM to run the Panama EAST COAST ALL WATER services – and in theory improve sell rates – so there are/were similarities. What is amazing is that the Maersk/MSC lack of apparent cultural fit at the outset of 2M – has worked out – as far as we know. I’m not sure how many years the new agreement would be, a su know the MSC/MAERSK deal is 10 years!.
    Having HMM also helps with the use of APM terminals around the world.