SEOUL -- South Korean container shipping line Hyundai Merchant Marine said Tuesday it had formed an alliance with two short-haul players in the country, strengthening their competitiveness in Asian routes against global players in the region.
HMM said it signed a memorandum of understanding with Heung-A Shipping and Sinokor Merchant Marine to cooperate on intra-Asian routes, including China and Japan. They agreed to share vessels and exchange slots within the alliance.
The signing comes as South Korea's big container shipping lines are facing low demand in global markets. Hanjin Shipping is taking steps to liquidate since it filed for court protection in August 2016. Its sudden collapse caused global logistical chaos as port authorities banned Hanjin Shipping from unloading its cargoes on worries that they would not be paid for their services.
Shareholders of Korea Line, a midsize bulk shipping carrier, on Tuesday turned down the company's plan to acquire Hanjin Shipping's key business. Korea Line said that its executives were discussing ways to resolve the conundrum.
In December, the company agreed to buy Hanjin Shipping's seven affiliates that ply Pacific routes for 37 billion won ($30.7 million). The deal price was later cut to 27.5 billion won after Korea Line declined to acquire six affiliates that were debt-ridden. Korea Line's shares closed up 4.2% at 17,500 won after the vote.
HMM is now under the control of Korea Development Bank which increased its stake to 36.5% in December from 20.35% by buying 300 billion won of convertible bonds. HMM operated under the wing of Hyundai Group, but its chair Hyun Jeong-eun gave up control after the company failed to pay down 5.4 trillion won of debt.
"With this strategic cooperation, we could use small routes in the region that Sinokor and Heung-A own, including Korea-Japan and Korea-China routes," said HMM in a statement. "It will help us take more transfer cargo in Busan Port, boosting our competitiveness against ultra-big shipping lines."
The alliance between South Korean players comes a month after HMM agreed with 2M Alliance to share surplus capacity, and to exchange and purchase slots from its member companies, which include the world's two largest players, Denmark's Maersk Line and Switzerland's Mediterranean Shipping.
HMM says the 2M acquisition will help its businesses in the Pacific and along European routes while the new alliance between local players is part of its strategy to launch a similar system for Southeast Asian, Japanese and Chinese routes.
The consortium titled "HMM+K2" will be officially launched in March after a contract is signed in February, HMM says. The two-year contract will be automatically extended when the term expires. The three companies plan to expand their cooperation in the mid- and long-term by investing in port infrastructure and sharing their container facilities.
Analysts welcomed the announcement, saying that the alliance could improve services in the Asian shipping market. "It is kind of a 'win-win' alliance between Hyundai and others. With the cooperation they could boost service quality," said Jeon Hyung-jin, a senior researcher at the Korea Maritime Institute.
Investors reacted positively to the decision. HMM shares rose 1.18% to 6,870 won on the news, though they are still less than a quarter of their one-year high of 28,900 won. Heung-A saw its shares spike 4.87% to 1,400 won. Sinokor is a Korean company with no affiliation with chaebol, or family-controlled conglomerates, and other business groups. It is not a listed on the stock market.
But, Jeon says HMM still faces tough competition from Maersk and MSC in the Pacific routes as the only South Korean player. "It won't be easy for Hyundai to beat them in the long-haul services," he said.
Heung-A is a mid-sized shipping line specializing in Asian routes. It carries more than 1.2 million TEU of containers a year, according to the company. Sinokor is a container shipping line, connecting 60 ports in 16 countries, including China, Japan, Russia, Vietnam and South Korea.