Andy Lane from CTI Consultancy ponders what will happen to South Korea’s other major carrier.
Despite all of the denials, it had looked plausible back in July that Maersk would save HMM now, with potentially a view to acquiring them later – for a fire-sale price. However at a knock-down price, this might not be attractive to the HMM shareholders, at book-value++ not attractive to Maersk (or others), not least with so many other distressed assets around and an uncertain climate where accumulating debt might also not be so good. An acquisition or merger also presents great risks as it throws the acquirer into a temporary state of chaos – it is very easy to lose customer confidence and therefore market-share during such transitions. With maybe the exception of NOL and APL, we are also yet to see a true ‘East meets West’ merger or acquisition within the industry, and the intricacies of cultural and business differences should not be underestimated.
The inspiration of 2M to ‘invite’ HMM to their alliance could therefore have been driven by a realisation that KDB would only have the appetite and ability to save either HMM or Hanjin – then it is better for the competition to see the larger one sink. With Hanjin essentially gone, has the 2M flirtation with HMM served its purpose?
Now that 2M has launched a new service and is presumably gaining some market share on the transPacific where it was previously under-subscribed, the attraction of HMM in 2M might well be less.
HMM remains also somewhat of a liability to any alliance given what we have seen transpire with Hanjin and CKYHE, as well as many other loading partners. HMM continues to have extremely high debts and without a significant uptick in revenues coupled with a serious over-throw of the business model – how long will it be before they are in trouble once again?
We might find moving forwards that perceived financial stability of a carrier (and its partners) gets some increased priority when shippers are selecting contract carriers, and this might still hurt HMM (and whoever it partners with) in the short to mid-terms whilst memories are fresh of past and present pain.
Might THE alliance be interested in the HMM capacity within its network? The capacity is naturally attractive, but does that outweigh the risks or negative perceptions which will follow HMM for a while to come?
If HMM does not end up on an alliance seat when the music stops, then it might have no viable alternative but to disengaging as a ‘global’ player and focus only on its core trades where it might be able to establish some highly competitive niche products. If it will take this path, and it is not necessarily a bad one, it will need to do so whilst it still has some liquidity. Running the tank dry and then trying to re-invent yourself is unlikely a winning strategy, if it is even a ‘strategy’ at all.
We should at least expect the HMM road ahead to have several sharp twists and turns on an anyway bumpy surface.