HMM to Leave 2M Alliance! May Join the Rival Ocean Alliance?

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  • HMM plans to leave the shipping alliance with the 2M Alliance
  • HMM ready to forge a new ocean alliance when its ties with the 2M Alliance expire in April 2020
  • The contract is unfavourable for HMM as it is currently not a full member of the alliance

A financially ailing South Korean container operator is all set to leave the giant shipping alliance as its government-backed owner considers a bigger overhaul.

HMM to break the alliance

South Korean flag carrier Hyundai Merchant Marine Co. is set to leave a powerful shipping alliance that guarantees its ships are used to move cargo across the oceans, complicating its efforts to reverse a slide and to compete with much bigger rivals.

The Hyundai Merchant Marine (HMM) has conveyed that it will be difficult to extend its shipping alliance with the 2M Alliance which will expire in April 2020. The carrier is planning to join a new ocean alliance when its ties with the 2M Alliance expire in April 2020.

Unfavourable contract

HMM is currently not a full member of the alliance and under an agreement signed in 2016, HMM purchases and exchanges slots with the two powerful shipping lines.

The contract is disadvantageous to HMM as it is not a full member of the alliance. Lately, HMM’s status fell as the 2M Alliance inked a partnership deal with Israel’s Zim Integrated Shipping Services.

HMM’s contract with the 2M Alliance is a conditional cooperation agreement which runs from April 2017 to March 2020. At the time, 2M agreed that it would accept HMM as a full membership company based on an assessment of HMM’s financial structure and liquidity improvement.

Reason for leaving

Taking current situations into account, HMM and 2M are highly likely to part ways. Typically, a shipping alliance runs at least five to 10 years, but HMM has a three-year contract with 2M. In addition, since HMM is not a full member, it has to endure disadvantages in terms of routes. HMM also faces restrictions in expanding its sales power because 2M requested HMM to restrict new shipbuilding orders when it signed the deal with HMM.

2M skeptical of the alliance

2M strongly protested against HMM’s orders for 20 large container ships, which were placed in April under the Korean government’s five-year shipping industry reconstruction plan.

An official in the Korean shipping industry said, “2M is hampering HMM’s fleet expansion even though the Korean shipper urgently needs to recover its competitiveness”.

2M is also skeptical about maintaining its alliance with HMM. The alliance recently decided to establish a strategic partnership with Zim Integrated Shipping Services, an Israeli shipping company, for U.S. routes, putting HMM in a more disadvantageous position.

HMM ready to forge a new alliance

Some shipping industry experts say that HMM will join a new shipping alliance other than 2M based on its enlarged fleet as the 20 ships ordered by HMM this year will be delivered starting in 2020. Shipping analysts say HMM is likely to join the Ocean Alliance, which includes France’s CMA CGM, China’s COSCO and Taiwan’s Evergreen.

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Source: The Wall Street Journal

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