By In-Soo Nam

SEOUL--South Korea's Hyundai Merchant Marine Co. has withdrawn from a joint bid with Mediterranean Shipping Co. for a controlling stake in the U.S. port operator that runs Long Beach, California's biggest container terminal.

Hyundai instead plans to later take a minority stake in Total Terminals International LLC. "Considering our low credit ratings, we thought it would be better for MSC to make a solo bid. We agreed to buy a stake from MSC later," Hyundai Chief Executive C.K. Yoo told The Wall Street Journal in an interview.

Mediterranean Shipping is expected to win, given its status as the world's second largest container operator by capacity, brokers say. It already owns 46% of the Long Beach terminal operator.

At stake is the remaining 54% of Total Terminals, owned by Hanjin Shipping Co., which went bankrupt in August and is being sold in pieces.

Hyundai said earlier this month it had formed a consortium with Geneva-based MSC in the race for the 385-acre facility that handles three million containers after another contender, Korean Line Corp., withdrew its bid.

"We intend to get a low double-digit stake in the terminal, which we need to save costs for cargo unloading," said Mr. Yoo.

Los Angeles and Long Beach are the two biggest U.S. ports in terms of capacity, handling the majority of imports and exports between the U.S. and Asia, moving more than 15 million containers annually.

Hyundai, now South Korea's largest shipping line following Hanjin's collapse this year, has been unprofitable for several years whileamassing debt. It hopes to double its 2.2% market share in the global container capacity by 2021.

But, along with a global industry that moves 95% of the world's manufactured goods, it is struggling with record-low freight rates and falling demand, amid a capacity glut that has fueled price wars between operators and pushed freight rates to levels that barely cover costs.

Adding to the pressure, cargo owners' trust in Korean operators has been shaken after Hanjin's August collapse which left $14 billion worth of goods stranded at sea for months.

To cut costs during the industry's worst down-cycle in three decades, Hyundai had tried for months to join the 2M Alliance, the world's largest shipping group, but only managed to secure a limited cooperation deal such as slot purchases and exchanges earlier this week.

Under the deal, set to take effect in April, 2M members--Denmark's Maersk Line and MSC--agreed to take over a combined nine chartered vessels from Hyundai that can each carry between 10,000 and 13,000 containers.

While this will remove a substantial cost from Hyundai's bottom-line, it also means a de facto partial acquisition of the company, by taking over most of the Korean carrier's Asia to Europe operations, say shipping executives.

Membership in a global shipping alliance was one of conditions laid out by the heavily indebted company's main creditor, state-run Korea Development Bank, to approve a restructuring plan last summer that made the bank Hyundai's biggest shareholder.

Maersk executives said shippers will be given the choice on whether they want their goods on Hyundai ships as part of the 2M cooperation agreement or not. Mr. Yoo said Hyundai will try to gain full membership when its limited cooperation with 2M ends in three years.

Pressure on rates has prompted rounds of consolidation in which the top players are trying to bulk up to obtain more pricing power when the industry recovers.

The Hyundai chief executive said it would be unthinkable for the company to be taken over by any of the 2M members, despite Maersk's push to grow via mergers and acquisitions.

"With Hanjin collapsed, Hyundai is Korea's only oceangoing carrier. Maersk knows acquiring a national asset is out of the question," he said.

Mr. Yoo said Hyundai now covers nearly two thirds of U.S. bound cargoes from big Korean companies such as Samsung and LG after the fall of Hanjin, and counts U.S. retail giants and large freight forwarders as main clients.

A veteran Hyundai Merchant executive who returned to the company as CEO in October after a brief stint as a local port operator, Mr. Yoo said he expects the global shipping industry to remain under pressure next year but sees freight rates eventually rising as consolidation continues.

Rates have averaged around $700 a container a month since the start of last year on the benchmark Asia-to-Europe route with the break-even point at $1,400.

"The market has become too volatile to predict freight rates over the next week, next month, next year. It's tough even for a veteran like me, " said Mr. Yoo.

Costas Paris in New York contributed to this article.

Write to In-Soo Nam at In-Soo.Nam@wsj.com

(END) Dow Jones Newswires

December 15, 2016 00:04 ET (05:04 GMT)

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