Rolf Habben Jansen, the chief executive officer of ocean carrier Hapag-Lloyd, said he believes consolidation in the shipping industry resulting from deals such as Monday’s merger agreement between Hapag-Lloyd and UASC will benefit the container industry.
German ocean carrier Hapag-Lloyd’s CEO Rolf Habben Jansen said he believes consolidation in the shipping industry resulting from deals such as Monday’s merger agreement between Hapag-Lloyd and United Arab Shipping Company (UASC) will benefit the container liner industry.
“In general, we believe that it is a really good thing to see the consolidation in the shipping industry at this point,” he said in a call with securities analysts, adding that such consolidation is “long overdue” and will help stabilize the container shipping industry as will the replacement of the four major vessel sharing alliances – the 2M Alliance, the G6 Alliance, the CKYHE Alliance and the Ocean3 Alliance – into just three, consisting of the 2M Alliance, the Ocean Alliance and THE Alliance.
Habben Jansen also noted that Hapag-Lloyd has been a leader in liner industry consolidation, acquiring CP Ships in 2005, the container shipping business of CSAV in 2014 and now UASC.
Other recent mergers include Hamburg Sud’s acquisition of CCNI in 2015, the merger of CMA CGM and APL, and COSCO and China Shipping this year.
Over the time, the concentration might slightly rebalance the power between shippers and carriers, he said.
Freight rates have been on a downward trend since 2009 and averaged $1,019 per TEU in the
second quarter, with Hapag-Lloyd, $245 below the same period last year.
The company expressed how the recovery at the beginning of July does not seem
sufficient and sustainable and that bunker prices increased throughout
the second quarter.
Consequently, Habben Jansen said, Hapag-Lloyd is reducing its earnings projections, noting that both earnings
before interest, taxes, depreciation and amortization (EBITDA) and
earnings before interest and taxes (EBIT) are decreasing compared with
the second quarter of 2015.
In addition, he said that
Hapag-Lloyd expects UASC will have divested its interest in the tanker
company United Arab Chemical Carriers (UACC) before the merger with
Hapag-Lloyd.
After the Hapag-Lloyd/UASC merger is completed, five carriers will have a majority share of capacity in each of five key trade lanes, according to Habben Jansen. On a pro forma basis, just five carriers will have 82 percent of capacity on the transatlantic trade, 78 percent of capacity to and from Latin America, 70 percent of capacity between the Far East and Europe, 54 percent of capacity on the transpacific trade, and 51 percent on the Middle East/Indian subcontinent trade.
The company gave this detailed pro forma projection as of June 2016:
• Transatlantic: Combined Hapag-Lloyd/UASC, 27 percent; MSC, 21 percent; Maersk, 20 percent; CMA CGM/APL 9 percent; and Zim 4 percent
• Latin America: MSC, 21 percent; Hamburg Sud, 18 percent; Maersk, 17 percent; combined Hapag-Lloyd/UASC, 11 percent; and CMA CGM/APL 11 percent
• Far East-Europe: MSC, 19 percent; Maersk, 15 percent; CMA CGM/APL, 14 percent; COSCO/China Shipping, 11 percent; and combined Hapag-Lloyd/UASC, 10 percent
• Transpacific: Maersk, 14 percent; COSCO/China Shipping, 13 percent; CMA CGM/APL, 12 percent; Evergreen, 8 percent; Hanjin, 7 percent; and combined Hapag-Lloyd/UASC, 6 percent
• Middle East/Indian subcontinent: Maersk, 16 percent; MSC, 11 percent; CMA CGM/APL, 11 percent; combined Hapag-Lloyd/UASC, 8 percent; and Evergreen, 5 percent
Overall, the merger should create synergies of at least $400 million in savings annually by 2019, with a third of those realized next year, according to Habben Jansen.
Most of those will be “network savings” from the use of larger vessels, and the ability of the combined companies to eliminate a “small double digit number of ships.”
The company also expects to reduce overhead by combining offices, for example, and reducing costs for terminal services, container handling and reducing container imbalances.
Habben Jansen said THE Alliance is also committed to optimizing their network “end to end” by looking at ways to reduce terminal, intermodal and equipment costs. THE Alliance is the vessel sharing agreement that Hapag-Lloyd/UASC will be a part of with Hanjin, Yang Ming, MOL, NYK and “K” Line starting in April 2017.
The need for future capital spending will also be reduced as Hapag-Lloyd will greatly increase its fleet of very large containerships with the addition UASC’s fleet, which includes six 18,800-TEU vessels added in 2015 and 2016; and eleven 15,500-TEU ships, nine of which have already been delivered since 2014 and two more scheduled for delivery later this year.
Hapag-Lloyd’s fleet is notably deficient in large ships, with only 10 ships with a capacity over 10,000 TEUs, which are referred to as the Hamburg Express class ships with a capacity of 13,169 TEUs. The company will take delivery of two 10,500-TEU ships in the second half of this year and three similar ships in the first half of 2017.
After the merger, Habben Jansen said ships in the combined fleet will have an average age of 6.6 years, one of the youngest in the industry, and 77 percent of the fleet will be 10 years or less. Hapag-Lloyd will also own 62 percent of its fleet, as opposed to chartered ships.
“We will not need to do any significant investments in vessels over the upcoming years,” said Habben Jansen. “It will all be about making sure we make the best out of the combined entity and that we adjust capacity where needed to demand.”
Hapag-Lloyd hopes to complete the deal by the end of this year and has filed for antitrust clearance in the U.S., China and with the European Union. The carrier plans to start the integration of the company as soon as the merger is completed and to raise $400 million in the public markets in order to deleverage the company within six months after the deal is completed.
Hapag-Lloyd CEO says merger with UASC will rebalance power between shippers and carriers
