Dive Brief:

• Though less than a full alliance, Hyundai Merchant Marine (HMM) signed a "strategic cooperation"  agreement with 2M partners Maersk Line and Mediterranean Shipping Company (MSC) that will enter into effect April 2017, according to a company press release.
• The "2M+H Strategic Cooperation" consists of a slot purchase agreement wherein 2M and HMM will expand access by purchasing capacity on each others' ships, and Maersk will take over the charter of five HMM vessels, The Wall Street Journal reports.
• As a condition for debt-restructuring, HMM's creditors insisted the company join an alliance. Short of an alliance, the debt-laden line insisted in a press release 2M+H "is definitely one of alliance types, as we adopt operation methods which other alliances also adopt and it has binding force for FMC filing."

Dive Insight:

The 2M alliance's choice to spurn HMM's full membership through a slot purchase agreement highlights an increased financial skepticism by stakeholders following Hanjin Shipping's August entry into bankruptcy.

After all, the 2M+H cooperation is essentially a less-binding version of an alliance. The main differences are that the agreement lasts for three years (not six), does not restrict new vessel orders in the long term, and limits the financial risk exposure of containers by limiting shared transport to specific slots within ships, rather than a more expansive vessel sharing agreement.

When news first broke that Maersk was no longer considering HMM for full alliance membership, reports cited customer concerns over the Korean line's solvency. The first announcement of a limited version of an alliance was sent directly to customers.

HMM has been undergoing a creditor-led restructuring since June 2016, potentially saving the struggling company from Hanjin's fate. The restructuring plan required HMM to join an alliance and become a global carrier in order to remain competitive in an adverse market. HMM is laden with $4.54 billion in debt, although the Korean Development Bank has promised to absorb 40% of this debt into equity if conditions are met. Korea has openly chosen HMM as its preferred carrier to become a global competitor.

HMM was relying on 2M membership, but hopes the new agreement will meet creditor standards. The line argues the binding structure and increased network capacity carries all the same benefits as an alliance.

The smaller scale of the agreement also benefits Maersk Line and MSC, as full affiliation will not worry consumers as much of a large-scale disruption in case of HMM financial failure although the lines will be able to take advantage of some of HMM's Trans-Pacific assets.

Maersk Line, in particular, will benefit by taking over five charters which furthers Maersk's goal of growing through acquisitions rather than partnerships. Meanwhile, the sale will reduce some of HMM's debt.