The new CEO of HMM will call at the head offices of 2M Alliance members Maersk Line and Mediterranean Shipping Co. in possibly the clearest sign yet that it plans to renew its vessel sharing agreement with the European carriers expiring April 2020.
Jae-hoon Bae, president and CEO of HMM, has embarked on a European tour that will include stops at Maersk’s Copenhagen headquarters and MSC’s Geneva office. While an HMM spokesperson told JOC.com that the visit was a “courtesy call,” rather than a “deep and serious discussion” on its future with the 2M Alliance, a carrier statement said the purpose of Bae’s Denmark and Switzerland meetings would be to “consolidate the relationship with 2M.”
The HMM spokesperson reiterated earlier statements made by the carrier that no decision has been made on extending the partnership with the 2M Alliance. However, HMM has 12 mega-ships of 23,000-TEU capacity coming online at the same time as the 2M agreement expires. Being able to improve utilization by adding those vessels to Maersk and MSC’s Asia-North Europe strings will be crucial as volume growth declines on the trade and fuel prices rise.
Container volume on the Asia-Europe trade grew by just 311,000 TEU (1.4 percent) in 2018 compared with the previous year, according to data from Container Trades Statistics (CTS), a sharp slowdown from the 4.5 percent growth rate recorded in 2017. And although it's still early in the year, TEU volume on the trade is actually down 0.7 percent through the first two months of 2019.
Fuel price explosion
Like all carriers, HMM in 2018 battled rising bunker fuel prices that almost doubled year over year, reaching a high of $486 per ton in October. The prices fell off slightly into this year but have since climbed back past the $400 per ton mark. At the same time, freight rates remained under pressure on Asia-Europe, leading the carrier to its eighth-straight year of operating losses. Despite globally carrying 428,000 TEU more in 2018 than during the previous year, an increase of 10 percent, the carrier reported an operating loss of $451 million.
State-owned Korea Development Bank (KDB), HMM’s primary shareholder and lender, hardened its attitude towards the carrier late last year, threatening to fire non-performing staff after 14 consecutive loss-making quarters. Then in March, Bae replaced Chang Keun Yoo, who announced his resignation earlier this year after five years at the helm amid speculation that his struggle to return the carrier to profitability and pressure from shareholders forced him to step down.
Bae previously served as president of electronic producer LG Semicon Americas Inc., vice president of LG Electronics, and most recently CEO of Pantos Logistics.
With uncertainty surrounding the carrier’s future with the 2M and its poor profitability, the new CEO’s European tour will also focus on strengthening business relationships with major customers in Europe. The HMM statement said Bae “will lead an effort to reinforce the trust of its valued customers through business meetings.”
The CEO's previous senior executive positions with LG, one of South Korea’s leading manufacturers, will have given Bae an insight into what shippers expect from their carriers. In fact, the company said on confirming Bae’s appointment in late March that he would “focus on a customer’s view on handling HMM’s current issues in order to lead managerial innovation and strengthen its sales competitiveness.”
Also on Bae’s European agenda is a meeting with International Maritime Organization (IMO) secretary general Kitack Lim, where the CEO will try to gather insight into the new low-sulfur fuel regulations that will be in place from Jan. 1, 2020.
The industry expects using the more expensive low-sulfur fuel is expected to add $10-15 billion to its annual fuel bill and will need to recover those operating costs from customers through increased fuel surcharges.
Returning HMM to profitability under these circumstances will be difficult, something the carrier acknowledged in a gloomy 2019 outlook.
“The liners’ burden of high fuel costs will increase due to the US sanctions against Iran, OPEC agreeing to cut oil production, and increase in demand for low sulfur fuel oil in preparation for IMO 2020,” HMM said in a statement after announcing its 2018 loss.
“Uncertainty over the cargo volumes in 2019 will continue due to the concerns of a global economic slowdown, Brexit, and the US-China trade conflict,” the firm added.