Korea Line faces tough trans-Pacific entrance

Korea Line’s expected entry into the container shipping industry through its acquisition of Hanjin Shipping’s assets including five ships with capacities of 6,500 twenty-foot-equivalent units won’t likely be an easy one, as the dry bulk carrier faces fierce competition on the trans-Pacific route littered with failed new entrants.

The track record for new entrants is poor. Over the last six years at least six container lines — including Hainan POS, Grand China Shipping, and T.S. Lines — have entered the trans-Pacific trade lane only to pull out in 2011 and 2012, maritime analyst Alphaliner said in its latest report. It’s also unclear how Korea Line would fare if it doesn’t enter one of the three major shipping alliances that will be on the water in April.

Looking past failed endeavors, Korea Line would enter the trans-Pacific during one it most perilous times. Even though eastbound trans-Pacific spot rates have held up during the peak season, carriers are still bruised after signing historically low 2015 to 2016 contracts, where prices dropped below $750 per 40-foot container to the West Coast and $1,500 per 40-foot-equivalent unit to the East Coast, according to informal discussion with major retailers. Historically, contract rates were in the range of $1,800 to $2,000 per FEU to the West Coast and about $3,000 on all-water services to the East Coast.

The market is also highly fragmented. Hanjin Shipping, for example, had just 7.4 percent of Asia imports to the United States in August before it was placed in receivership at the end of the month, according to PIERS, a sister company of JOC.com within IHS Markit. In the following month, CMA CGM and Hyundai Merchant Marine made the most aggressive gains in the share of Asia imports to the United States from August to September, increasing their market share 1 and 0.7 percentage points, respectively.

Korea Line, which emerged from bankruptcy in 2013 after being acquired by construction firm Samra Midas Group, was named the preferred bidder to take over Hanjin’s Asia-US and intra-Asia networks. If the deal goes through, South Korea’s second-largest dry bulk shipper will acquire Hanjin’s assets Nov. 21. Hyundai Merchant Marine, now the largest South Korean container line after Hanjin’s collaple, surprisingly wasn’t named the preferred bidder by the Seoul Central District Court.

The deal involves five 6,500 twenty-foot equivalent unit ships, seven subsidiaries, related staff, logistics systems, and other tangible and intangible assets. Hanjin’s 54 percent stake in Total Terminals International LLC, which runs a container terminal in Long Beach, could also be included in the sale if TTI’s other shareholder, Mediterranean Shipping Co., doesn’t take over the stake.

“Although HMM’s bid was supported by its main creditor KDB, HMM is unlikely to have put a high value to Hanjin’s loss-making trans-Pacific operations, as these would overlap with the carrier’s existing network and add to its overhead costs,” Alphaliner said. “HMM’s bid also offered to take over a lower number of Hanjin employees than the Korea Line offer.”

Source: Journal of Commerce (SSU)

Source: Journal of Commerce