The world's largest container-shipping alliance has decided not to allow Hyundai Merchant Marine Co. to join amid customer backlash, people involved in the discussions said, dealing a blow to the troubled South Korean shipping concern.

Hyundai Merchant wasn't immediately available for comment.

In a November note to clients, Maersk Line said that rather than Hyundai Merchant becoming a 2M alliance member, the parties are looking "at other cooperation possibilities" including taking over Hyundai Merchant's chartered vessels and deploying them into the 2M network.

At the time, Hyundai said that joining the alliance is still under discussion and that there will be an announcement in early December.

Hyundai Merchant signed a memorandum of understanding to join the 2M alliance in July, a key step in a painful debt restructuring that gave the flagship unit of the Hyundai Group breathing room and allowed it to escape bankruptcy.

A senior executive with the 2M alliance, which consists of Maersk Line and Mediterranean Shipping Co., said customers balked at the inclusion of a Korean carrier after the August collapse of Hanjin Shipping Co. Maersk Line, a unit of A.P. Moller-Maersk A/S of Denmark, is the world's biggest container line by capacity. Switzerland-based Mediterranean Shipping ranks as No. 2.

"We reckon that at this point going to bed with Hyundai could shake customer confidence so we are looking for looser forms of cooperation," said the executive, who declined to be identified.

Hanjin declared bankruptcy in late August leaving an estimated $14 billion worth of cargo stranded at sea for months. The cargo owners included U.S. retailers like Amazon.com Inc. and Wal-Mart Stores Inc. and global majors like Samsung Electronics Ltd.

The exclusion could leave Hyundai Merchant in a precarious situation, shipping executives said, because these alliances allow the partners to substantially reduce operational costs by sharing vessels and port calls. There are only three main container-shipping alliances.

"If Hyundai wants to have a future as a global operator it must have a strong vessel sharing agreement with one of the alliances," said Lars Jensen, chief executive of SeaIntelligence Consulting in Copenhagen. "A looser deal may evaporate depending on market conditions."

Hyundai Merchant controls a 2.2% market share in global container capacity. It was on pole position to cherry-pick among Hanjin's biggest ships, but lost out to Maersk and Mediterranean Shipping, which took control of nine of Hanjin's biggest vessels.

In a further setback, a much smaller local competitor, Korea Line Corp., outbid Hyundai for Hanjin's business between Asia and the U.S.

"After Hanjin's bankruptcy, there is concern with all our counterparties," said Iraklis Prokopakis, chief operating officer of U.S.-listed Danaos Corp., which has leased 13 ships to Hyundai Merchant. "But after Hyundai's restructuring earlier this year, its balance sheet is better, so we worry less."

Write to Costas Paris at costas.paris@wsj.com

 

(END) Dow Jones Newswires

November 30, 2016 14:45 ET (19:45 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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