Asia, China business drives Hapag-Lloyd post-merger plans with CSAV

Following its merger with the Chilean company Compania Sud Americana de Vapores (CSAV), catapulting Hamburg-based Hapag-Lloyd to the rank of the world’s fourth largest container shipping company, Hapag-Lloyd is hoping that Asia and, particularly, China will provide a strong impetus to its business. Latin America is another attractive market for the company whose position in that region is further strengthened as a result of the “huge synergies” from the merger.

In a recent interview with the American Journal of Transportation in New York, Rolf Habben Jansen, Hapag-Lloyd’s chief executive, averred that the merger would strengthen the company’s operations in Latin America, besides augmenting its services in China traffic with Asia and even beyond. Hapag-Lloyd was expecting greater shipping interaction in the emerging markets, particularly in the intra-Asia and Africa trade, though it would continue with its past concentration on the markets of the developed countries. Jansen, who joined Hapag-Lloyd five months ago, also spoke of the opportunities emanating from the creation of the ASEAN Economic Community (AEC) which will be formed in 2015. “The creation of the ASEAN Economic Community is being viewed positively by the world’s shipping companies which envisage a larger, more integrated market of 600 million consumers that would attract shippers and shipping lines. “The creation of the AEC will further boost the intra-ASEAN and intra-Asian trade. Indeed, we are upbeat not only about the AEC but the entire Asian continent,” said Jansen, adding that Hapag-Lloyd had a strong presence in the ASEAN region, and maintained offices in Kuala Lumpur and Singapore. Hapag-Lloyd even operates container vessels named after a number of Asian cities, including the “Kuala Lumpur Express”, “Singapore Express”, “Shanghai Express”, etc. While underscoring the importance of Asia as a growth region, Jansen singled out China and India as two markets inherent with strong growth potential. “I am a big believer in the power of China which has done some impressive things and which will continue to grow. Although we are under-represented in India, we see good potential in India and are interested in that market as well,” Jansen said. Commenting on the port congestion at Asian ports, Jansen expected the situation in Asia to ease in 2015 following infrastructure expansion and modernization “after some congestion this year (2014)”. Singapore and Hong Kong still posed some difficulties because of traffic and other reasons. “I am upbeat about Asia. The problems on the west coast of the United States will go away fast,” Jansen predicted. Many German shipping lines and operators are unnerved by the crisis in the Ukraine and its impact on trade with Russia. Hamburg port, which touts itself as Germany’s “gateway” to Asia, also relies on trade with Russia which, after China, has emerged as the port’s second biggest market. But the Ukraine crisis did not have “any serious repercussions, as originally feared, on trade with Russia”, as Hamburg port representatives had earlier told the American Journal of Transportation. This view was also echoed by Hapag-Lloyd. “The Ukraine crisis did not have much impact on us because Russia is not our major market,” said Jansen. Meanwhile, the merger between Hapag-Lloyd and the CSAV recently received formal approval from all the relevant global authorities after the contracts between the two were signed in April 2014. The merger of the two liner companies will produce “huge synergies”, Hapag-Lloyd representatives stated during their New York visit. They expected annual savings of at least US$ 300 million resulting from optimization of networks, productivity improvements and cost reductions. The merger will yield about 200 vessels with a total capacity of approximately one million TEUs, transporting some 7.5 million TEUs each year, and will set up its fourth regional headquarter in Valparaiso, Chile. With revenue of around US$ 12 billion, the combined entity will join the big league of international shipping companies. Describing the merger as a “great happening”, Jansen said: “Hapag-Lloyd’s strength in Asian traffic and on the North Atlantic, combined with CSAV’s strong position in Latin America, will elevate us to become the leading shipping company in this region – and thereby be able to offer our global customers an even more attractive network and wider range of products. Our ability to compete will also be significantly enhanced by closing the gap to the top three of our industry, adding that there would be “no major changes to the way we work until the transition to the Hapag-Lloyd systems towards the end of the first quarter 2015”. In addition to integrating CSAV’s container business into Hapag-Lloyd, there are also plans to strengthen the company by raising capital of Euro 370 million, with CSAV holding a share of Euro 259 million and Kuehne Maritime Euro 111 million. Asked if his company would go for fleet renewal, Jansen replied that “fleet renewal does not mean ordering new vessels on a short-term basis”. “However, we will review on a mid-term basis. We will also discuss with our partners in the G6 alliance,” he said. The G6 alliance was formed three years ago with shipping lines in The Grand Alliance (TGA) and the New World Alliance (NWA) coming together to form this new grouping. The new Far East-Europe alliance brought together six carriers - NYK, Hapag-Lloyd and OOCL (from the TGA) and APL, HMM and MOL (from the NWA) – offering nine services which, the members claim, provided fast transit times and improved port coverage. More than 90 ships covering over 40 ports in Asia, Europe and Mediterranean are involved and it includes Bohai and Baltic loops. The G6 alliance had stated that the new partnership would create one of the leading networks in the Far East-to-Europe and Far East-to-Mediterranean container shipping markets, according to a joint statement issued in Hamburg, Seoul, Tokyo, Hong Kong and Singapore. “The integrated cooperation of these six lines will enable product and service features to be easily adjusted to market requirements,” an alliance spokesperson had said. Ordering the new ships will also be discussed with the partners so as not to “flood the market” with excessive capacity. “The big vessels that are being built are indeed the trend,” Jansen said. On the question of ordering new ships, Jansen said one had to be a “little bit cautious” considering that after a year of integration and the changed routes and services – “it’s probably better to focus more on (capacity) utilization rather than on deploying more ships.” Hapag-Lloyd is evaluating its need for mega-ships and will make a decision on new orders early in the second quarter of 2015. He said new ship orders were being discussed with the G6 partners. Jansen revealed that in an attempt to cut costs he would reflect on discontinuing certain unprofitable services, including ocean loops and inland services, in the U.S. and Europe. Hapag-Lloyd’s “distinct advantage” lay in providing more door-to-door inland services in those markets than other carriers, which are increasingly shifting towards port-to-port services. Asia, where the company now employs nearly 1,200 people after the merger, accounts for 25 to 30 per cent of its workforce and generates a similar percentage of the revenue which will surge in five to 10 years, even though the company’s intra-Asia shipping business is still small and has yet to come up with a market-specific growth strategy. The priority now, Jansen said, is to complete the integration by the middle of next year and return to profitability as soon as possible; the company did not post any profitability in the past three and a half years, recording net losses of some Euro 428 million during that period. Hapag-Lloyd, he added, was expecting to achieve profitability in 2016; a planned IPO in the German stock market by the end of next year may not take place that soon since next year will be a “year of transitions”. Improving market fundamentals and declining fuel prices are putting upward pressure on freight rates in the mid-term, he maintained.