HMM stake puts Long Beach terminal on path to recovery

HMM stake puts Long Beach terminal on path to recovery

Hyundai Merchant Marine announced Thursday that it will buy 20 percent of a company part-owned by Hanjin Shipping that operates terminals in Seattle and Long Beach, in a move that may go some way to restoring the severely depleted flow of cargo through the California terminal.

The container volume through the Long Beach terminal fell by about half, plunging the terminal operator into financial disarray, after Hanjin Shipping filed for protection in a South Korean bankruptcy court on Aug. 31, according to testimony in a New Jersey bankruptcy court last week.

HMM’s announcement came a day after the court gave the go ahead to the sale of Hanjin’s share in the operator, Total Terminals International LCC. Judge John K. Sherwood, sitting in US District Court in New Jersey, on Wednesday approved the sale of Hanjin Shipping’s 54 percent share in TTI to Terminal Investment Ltd., which is Mediterranean Shipping Co.'s terminal operating subsidiary. TIL already owns the remaining 46 percent of TTI.

HMM had earlier planned to bid for TTI jointly with MSC but the South Korean line withdrew from the bid because of its low credit rating and said it would acquire a stake from MSC at a later date.

HMM will pay $15.6 million for 20 percent of TTI and its equipment leasing firm, HTEC, which is based in Long Beach, becoming the second largest shareholder of TTI after MSC.

The acquisition will enable HMM to expand its West Coast slot allocation and get the same port tariff rates as MSC, while improving the carrier’s sales competitiveness in the Asia-US market.

“TTI’s handling volumes will dramatically increase, as we strengthen Asia-US services through strategic cooperation with 2M,” starting in April, the carrier said in a statement. It added that the acquisition would “help reduce terminal handling costs and secure stable profitability.”

MSC will pay $78 million for Hanjin’s share of TTI, and will forgive $54 million in accounts receivable owed by the carrier to TTI.  The sale had earlier been approved by the South Korean bankruptcy court, but required the go ahead from the U.S. Bankruptcy court, which granted Hanjin Chapter 15 status last month.

Sherwood approved the sale over bitter objections from post-bankruptcy creditors, mainly chassis and container lessors, who argued that the carrier could obtain more money with a more lengthy and thorough bid process. The creditors also argued that the South Korean bankruptcy court’s requirement that the sale proceeds be transferred to South Korea, would mean they would have to file claims in that country, and U.S. creditors would not get treated fairly.

The terminal’s volume fell from about 1.3 million TEUs a year to about 650,000 after Hanjin’s bankruptcy, according to court testimony. Representatives of Hanjin Shipping said the loss of Hanjin’s cargo volume meant TTI started operating in the red, ending 2016 with a loss of $37 million in earnings before interest, tax, depreciation and amortization.

The volume shortfall also meant that the terminal would only be of interest to a buyer that could bring an assured container volume, witnesses for Hanjin said in court. That severely limited the number of potential buyers, and was one reason why few expressed an interest in acquiring the terminal.

HMM, in its statement announcing the purchase of 20 percent of TTI, said MSC will take responsibility for “TTI’s loans and lease which means HMM is not responsible for TTI’s debts.”

Contact Hugh R. Morley at Hugh.Morley@ihsmarkit.com and follow him on Twitter: @HughRMorley_JOC.