Drewry: Hanjin’s Misfortune Leaves Gap at THE Alliance

Following the bankruptcy of South Korea’s container carrier Hanjin Shipping, the proposed carrier grouping THE Alliance is left at a size disadvantage to both its future rivals, according to shipping consultancy Drewry.

Even before Hanjin Shipping filed for bankruptcy protection the industry was preparing itself for big changes to the make-up of the major shipping alliances, which from April next year are scheduled to downsize from four to three. However, Hanjin’s impending demise and uncertainty surrounding new membership agreements and regulatory approval have clouded the picture.

Hanjin was one of six carriers along with Hapag-Lloyd, K Line, Mitsui O.S.K. Lines, Nippon Yusen Kaisha and Yang Ming that in May of this year announced they would form THE Alliance to serve the East-West container trades from the second-quarter 2017.

The South Korean carrier was the second largest of the group with 460,000 TEU in nominal ship capacity in the East-West routes before it exited the stage in August.

Hanjin has already been replaced to some extent, Drewry said. Hapag-Lloyd’s merger with United Arab Shipping Co. (UASC) will add 315,000 TEU in East-West capacity so it bridges some, but not the entire gap.

Merger talks between Hapag-Lloyd and UASC were well underway at the time of the announcement and the latter was always expected to become the seventh member.

Expectations that there would be an eighth partner were confounded when it emerged that the financially troubled Hyundai Merchant Marine (HMM) was in talks to join the world’s two largest carriers Maersk Line and MSC in the 2M alliance.

Based on the East-West vessel deployment in August, excluding Hanjin but including UASC, THE Alliance market share was around 24%, well below that of Maersk Line and MSC’s 2M Alliance+Hyundai Merchant Marine (HMM), accounting for a share of 31%, and the OCEAN Alliance, which includes CMA CGM, Cosco, Evergreen and OOCL, with its share of 34%.

Calculating potential market shares for the three proposed mega-alliances is complicated by the fact that HMM’s deal with the 2M lines is yet to be concluded and that no one knows who will pick up Hanjin’s capacity, which was approximately 5% of East-West ships in August. Compatriot HMM, which shares the same main creditor in the Korea Development Bank, is a likely buyer of some of the more attractive younger and bigger units in Hanjin’s portfolio of owned ships. The destination of Hanjin’s chartered fleet is even harder to second-guess.

In the US, the Federal Maritime Commission (FMC) has requested more information to consider the proposal of the OCEAN Alliance members, although there is no suggestion that the move will cancel or even push back the scheduled April start.

“While acknowledging that making perfectly accurate market share projections is impossible at this stage, we can safely say that THE Alliance will be far smaller than its two rivals. It’s potential to upsize by using ships currently outside of the alliance East-West network parameters and with new ships is also far smaller than the other two groups,” according to Drewry.