“at least for now”
For the moment Hapag Lloyd doesn’t have any plans for more acquisitions with the United Arab Shipping Co (UASC) deal slowly heading for conclusion. But as Manik Mehta writes from Hamburg, there are more items on HL’s CEO Rolf Habben Jansen’s agenda, such as re-paying shareholders, than the pending merger alone.
Germany’s largest container shipping line Hapag-Lloyd does not have any plans “at least for now” for any further acquisitions, after completing its upcoming merger with its one-time rival, the United Arab Shipping Co. (UASC). “I believe that (after the merger) we will grow in size and also have the competitiveness which will enable us, on medium-term basis, to make money,” noted Hapag-Lloyd’s Chief Executive Rolf Habben Jansen at the company’s recent conference for its 2016 performance. It was time to re-pay the shareholders who had done a lot of investment in the company during the past years, he said, adding that another merger was presently not on the card.
Hapag-Lloyd’s chief executive, apparently trying to allay the apprehensions of the shareholders over the delay in completing the merger with the UASC, averred that the merger could be completed “in a few weeks”; seeking an extension of the deadline had become unavoidable, he explained, because of the paperwork entailed. He conceded that the deadline factor had been “underestimated a bit”. Hapag-Lloyd had originally wanted to complete the entire merger process by end 2016 but had to twice seek the extension of the deadline – the latest being until end May.
Following the merger with the UASC, Hapag-Lloyd will rise in global ranking and become the number five among the world’s top container shipping lines; the Hapag-Lloyd management hopes to effect considerable savings through the merger. Hapag-Lloyd estimates that effective 2019 it could save some US$ 435 million annually. The shipping line could also benefit from the synergies emanating from the merger, not to mention surviving the fierce competition in the midst of the crisis that has plagued the shipping industry. Another advantage is that the merger would increase the size of the fleet to 240 ships. Also, since the average age of the ships is only 6.3 years, further investment in new ships will not be necessary. Indeed, the shipping company will now be able to return part of the chartered ships. This will mean, as Jansen put it, that “the money can now be used to paying our debts”.
By partnering with several Asian players in what is described as “The Alliance”, Hapag-Lloyd is trying to compete against leaders such as Maersk (Denmark) and MSC (Switzerland), as well as the CMA CGM (France). Indeed, size has become the key to survival for the container shipping lines by loading the ships to the maximum and thus reducing the costs.
Nevertheless, the close partnership also has its inherent risks and can evoke suspicions among the authorities of price fixing. A number of container lines have already come under the scanner of the U.S. Federal Bureau of Investigation. Jansen emphasized at the conference that his company was cooperating with the U.S. authorities, and did not expect that the investigation would delay the start of the alliance.
Meanwhile, Hapag-Lloyd has sighted light at the end of the tunnel after eight years of uncertainty resulting from the crisis in the industry. The turning point came, in fact, with the collapse of the South Korean container line Hanjin. Since then, freight rates had started, again, to rise on some routes. Prior to that, the big shipping lines had been undercutting their prices in a deadly price war. For the current year, Hapag-Lloyd’s chief executive envisaged a moderate increase in freight rates. The rise in fuel prices should be offset by effecting savings.
Although Hapag-Lloyd could increase its container volume by 2.7% to 7.6 million TEUs in 2016, it reported a loss of 93 million Euro after having posted a profit of 114 million Euro in the previous year. The year 2017 also did not start on a bright note. The shipping line did not benefit to the full extent from the surge in freight rates because it had already made commitments to customers as a result of long-term contracts. At the same time, fuel prices have also been rising; the drop in fuel prices last year had provided some relief to the container shipping company.
However, Jansen said that a rise in the average freight rates and also in the freight volume was expected this year. “We expect in 2017 some recovery in the market but our success will depend, to a large extent, on how we can achieve sustainable freight rates,” Jansen said.
But Jansen also delivered another solemn prediction: “we are convinced that in the future there will be only five to seven global shipping lines.” And, of course, Hapag-Lloyd wants to be among the top players that control some 70% of the market.