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.