The South Korean ocean carrier has continued to receive good support from its customers as it restructures its finances.
Hyundai Merchant Marine (HMM) has continued to receive good support from its customers as it restructures its finances, according to David Arsenault, the president and chief executive officer of HMM America.
In am interview with American Shipper conducted at last week’s Agriculture Transportation Coalition, Arsenault said “we were very fortunate that the customers really stuck with us. In good times, it is easy for everyone to be a partner. In challenging times, you get to see who your partners are and we were very fortunate.”
HMM attempted to “actively communicate with customers and let them know we had a plan, and working that plan,” Arsenault said. “Now we are pleased to see we have completed that plan and everything we said we would do we have done.”
The restructuring plan at HMM included a mixture of asset sales, extension of debt terms and debt for equity swaps, and renegotiation of charters from various ship lessors.
The company will finalize a debt for equity swap with the Korean Development Bank (KDB) and other creditors this summer, which will make the KDB a primary shareholder of HMM.
The sale of assets has created the liquidity and working capital that HMM needs “to continue uninterrupted operations.”
HMM continues to do business with the same containership chartering companies, including some that are publicly listed. Details of those renegotiations have not been made public, but the carrier did said in a press release that containership charter rates will be reduced by about 20 percent and it has also reached an agreement with bulk carrier owners for a 25 percent charter rate reduction.
Recently, the G6 Alliance – comprised of HMM, Hapag-Lloyd, OOCL, APL, MOL and NYK – announced it would suspend the transpacific Central China 1 (CCI) service for six weeks, which utilizes HMM vessels. In addition, an HMM vessel was also removed from the Asian-North Europe LP4, while three of the South Korean carrier’s six ships on the LP5 are being removed.
Arsenault explained that these are routine deployment changes that are made on a regular basis by the alliance, and that such changes are made on a rotating basis so that it is not always the same alliance member whose ships are sidelined.
With the CC1 loop suspended, he said capacity is being replaced with another string, the CC2, which is coming off a winter suspension and actually employs larger ships. The CC1 string will be restored in August when the G6 carriers believe demand will pick up.
He said on the Asia-Europe services, HMM ships are being redeployed onto other loops.
Arsenault could not comment on rumors about a possible merger of HMM and Hanjin, which is also a South Korean carrier. Those rumors were stoked last week by comments from Yim Jong-yong, the chairman of Korea’s Financial Services Commission. The Yonhap news agency reported Yim as saying said “Creditors will decide on whether to allow the two shipping companies to go on as separate business entities or to merge them together in one company depending on their rehabilitation efforts.”
HMM “has just completed a financial restructuring program that Hanjin is just beginning,” Arsenault said. Both companies are public companies listed on the Korean Stock exchange and Hanjin is on an independent path.
That does not rule out a possible merger sometime down the road, he said, “but quite frankly we can say that about every carrier. At this point there is just talk about it, but there is no specific actions.”
Several of the G6 Alliance carriers amongst other carriers have announced plans to form a new vessel sharing partnership called THE Alliance next spring. HMM is now “deeply engaged” in discussions about joining that group and said it is close to concluding negotiations that would allow it to join THE Alliance.
Asked if HMM was laying off employees, Arsenault said, “We are continuing to invest. One of our greatest assets are our people and we are continuing to invest in training and the future of the organization to ensure that we can continue to compete and differentiate ourselves in an environment with mega alliances that has become very challenging to differentiate. That is still a core part of our strategy is service and people behind service is a key component of our strategy.”
HMM has just under 400 employees in the United States and about 4,000 globally.
The carrier is even looking at its need for large ships in the future.
While that may seem surprising given the company’s recent financial difficulties, Arsenault noted the long lead times needed for vessel orders and deliveries. He explained how the company is not just looking short term, but at the vessels it will need over the medium and long term to maintain its competitiveness and remain attractive as a member of a vessel sharing alliance.
For example, HMM is contributing 10,000-TEU ships to the NYX, a new G6 Alliance all-water service between the Far East and U.S. East Coast, which will be one of the first to take advantage of the expanded Panama Canal.
Arsenault said the transpacific trade has been a corner stone of the carrier’s container service. The company is also a participant in the Asia-Europe and transatlantic trade through its membership in the G6 Alliance.
He believes demand will pick-up in the third quarter, but said the container liner industry still faces overcapacity, and that financial results posted by the industry at large were “horrific and a clear indication to the market that the rates that are out today are simply not sustainable.”
“There are very few customers I speak to who feel otherwise,” Arsenault said. “Everyone who has been in the industry for many years has never seen rates at the levels seen today. I think every carrier in all of the alliances must be going through and assessing the same thing. What is the right capacity to have deployed to meet the forecasted demand right now.”
“It’s now a matter of how do we begin the journey towards right-sizing supply with demand and bringing rate levels up to a level that at minimum are breakeven and eventually get to a reasonable return on our invested capital.”
