Asian, European Shipping Lines Form New Alliance

SEOUL—Some of the biggest Asian and European container-shipping operators left out of a recent wave of industry consolidation have agreed to form a new alliance, in a bid to rival the dominance of global giants such as Maersk Line and Mediterranean Shipping Co.

The vessel-sharing deal will comprise six shipping lines, namely the Japanese trio of Nippon Yusen K.K., Kawasaki Kisen Kaisha Ltd. and Mitsui O.S.K. Lines Ltd.; Germany's Hapag-Lloyd AG; and South Korea's Hanjin Shipping Co.

Hyundai Merchant Marine Co., which was expected to be part of the alliance, said Friday it was excluded from the new grouping, but could be part of it later.

Two people involved in the deal said Thursday that seven Asian and European shipping lines, including Hyundai, would form an alliance and announce the decision by Friday.

"The six-member alliance is not final and definitive. The door is still open to us. We expect to have no problem joining the group once our debt restructuring program with creditors ends successfully," said a Hyundai spokesman, adding that the company is discussing its entry into the group in early June.

An official at Korea's financial regulator, the Financial Services Commission, said Hyundai's exclusion is partly because the company is under creditor-led debt restructuring and in the final stages of negotiations with foreign shipowners to cut rates for its chartered fleet.

Hanjin said in a statement that the new alliance, accounting for about a fifth of the global container-fleet capacity, is scheduled to begin operations in April 2017 upon approval from relevant regulatory authorities.

Being part of an alliance has become imperative for the industry, which is marred by a 30% oversupply of vessels in the water as well as rock-bottom freight rates—well below break-even levels for much of the past two years. Alliance partners share ships, networks and port calls that cut their costs by hundreds of millions of dollars annually.

Several of the world's major shipping lines, however, risk being left on the sidelines as a deep downturn in the shipping business crashed against the industry and helps break apart long-standing agreements among carriers.

Last month, CMA CGM SA and China's Cosco Group, the third-largest and fourth-largest shipping lines by capacity, said they would form the Ocean Alliance, pulling in Hong Kong's Orient Overseas Container Line and Taiwan's Evergreen Marine Corp. The move unraveled other pacts, triggering a new round of deal-making to share vessel space.

Maersk Line, the A.P. Moller-Maersk A/S shipping unit that is the world's biggest container line by capacity, is teamed up with No. 2 carrier Mediterranean Shipping, in the 2M alliance.

Significant cost cuts are necessary for the two ailing Korean companies, which move the bulk of the country's exports. Hanjin and Hyundai are each undergoing widespread restructuring by main creditor Korea Development Bank to avoid going bankrupt.

Write to In-Soo Nam at [e-mail]

(END) Dow Jones Newswires

May 13, 2016 05:45 ET (09:45 GMT)

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