Hapag-Lloyd AG, Germany’s top container shipping line, and five Asian carriers will form a new vessel-sharing alliance to take on bigger rivals amid a glut in capacity that’s depressed freight rates.
The partners will include Japan’s Kawasaki Kisen Kaisha Ltd., Mitsui OSK Lines Ltd., Nippon Yusen KK, South Korea’s Hanjin Shipping Co. and Taiwan’s Yang Ming Marine Transport Corp., the Hamburg-based company said in a statement. Called ‘The Alliance,’ it will control 18 percent of the world’s container shipping fleet with more than 620 vessels and a combined capacity of 3.5 million standard twenty-foot containers, or TEU, according to the statement.
Global shipping lines are regrouping to compete more effectively against market leaders A.P. Moeller-Maersk A/S and Mediterranean Shipping Co. that are allied under the 2M partnership, which controls 28 percent of the market, according to Alphaliner. They also have to contend with Chinese operators as the government consolidated operations of two major state-controlled groups, China Ocean Shipping Group and China Shipping Group.
“It’s a grouping of the weak,” said Minoru Matsuno, president of a Tokyo-based investment advisory firm Value Search Asset Management Co., referring to the new shipping alliance. “Given the size of Maersk and the Chinese shipping lines, the companies in this new group need to review their strategy. Otherwise I am very skeptical about their ability to survive.”
Merger talks between Hapag-Lloyd and United Arab Shipping Co. SAG are progressing, and “it is anticipated” that UASC will become part of the new alliance, helping increase the total capacity of this partnership to more than 4 million TEU, according to the statement. Hapag-Lloyd is seeking to sign a deal by mid-June, a person familiar with the matter said Thursday.
The Alliance, agreed for a five-year term, is scheduled to commence operations in April 2017 after regulatory approvals.
Nippon Yusen, Mitsui OSK and Hapag-Lloyd are all currently part of the G6 Alliance, which will cease to exist next year, while Hanjin Shipping, Kawasaki Kisen and Yang Ming belong to the CKHYE alliance that also includes Cosco Container Lines Co. and Evergreen Marine Corp Taiwan Ltd.
CMA CGM SA, the world’s No. 3 carrier, and three other major lines signed a preliminary agreement to form a new group called the Ocean Alliance, which could become the second biggest after Maersk Line’s 2M partnership with Mediterranean.
France-based CMA CGM is taking over Singapore’s Neptune Orient Lines Ltd. and plans to bring the latter’s container operations unit APL under the Ocean Alliance. That will mean the partnership could have 26 percent of the market, according to figures from Alphaliner.
Hyundai Merchant Marine Co., which is now part of the G6 Alliance, said in a separate statement Friday that once its business is normalized, it plans to complete the necessary processes to join The Alliance before September.
Shares of Hyundai Merchant, which is currently working with its creditors to restructure its debt, fell 9.8 percent, the biggest decline in more than two months, in Seoul trading on news it won’t be part of the new grouping.
Hapag-Lloyd, which has a fleet of 175 vessels, reported a first-quarter loss of 43 million euros ($49 million) as a 20 percent year-on-year drop in freight rates outweighed cost cutting measures, it said in a separate statement on Friday. The carrier plans to rein in costs by a further “high, double-digit million dollar amount” with a new program, it said. For the full year, Hapag-Lloyd still expects an increase in operating profit.
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