With CSAV deal complete, German carrier should return to black quickly says CEO Rolf Habben Jansen.
Rolf Habben Jansen, chief executive officer of Hapag-Lloyd, expressed confidence that he will be able to restore profitability to the German shipping company following its just-completed merger with Chile’s CSAV.
“Our priority is to turn the company around as quickly as we can and to bring it back into black figures and we believe looking where we are today that that is definitely possible,” he said.
In the first nine months of this year Hapag-Lloyd had a loss of $224 million euros ($279 million), while CSAV had a loss of $159 million.
Habben Jansen, who became CEO in July, made his comments in a telephone interview with American Shipper while he was in New York Thursday, part of a global tour meeting with employees following the company’s merger with CSAV on Dec. 2. Following stops in Chile and Brazil, he visited Hapag-Lloyd’s U.S. office in Piscataway, N.J., and was headed to China over the weekend.
(Earlier this week, the U.K. publication The Loadstar published the article, “Post-merger, can the world’s fourth-largest box line defy financial pessimists?,” that focused on the newly merged company’s debt.)
Asked if the company’s debt was its overwhelming challenge, Habben Jansen said, “If you look at our industry and look at the results of CSAV, and look at the results of Hapag-Lloyd over the past three or four years, it is rather difficult to be overly optimistic. Seen from that angle, to put some caveats on the benefits to such a merger is very understandable,” he said.
“We see it a bit differently and we are also in it much deeper. If you look at it from our perspective it is very clear that we have a number of programs on the table that are going to help us a lot to improve the results of the company. There is not only integration, but there are other profit-improvement initiatives that we have on the table and that will bring us additional money going forward. I am right now rather optimistic, even if you have to recognize that the company has a considerable amount of debt,” he added.
“Of course that is something in the long run that we will need to address,” Habben Jansen said. “The priority if you want to reduce debt, then the recipe for that is to start making some money because then you can do something about that debt.”
He said the integration of Hapag-Lloyd and CSAV will bring considerable savings. In addition, he noted the company has an internal profit improvement program that will bring a “three-digit million U.S. dollar further improvement already as to 2015.”
And he said “there are a number of things we can do on the commercial front, and we are working on those, but the first results will most likely be only visible at the end of 2015 and beginning of 2016.
“If you add that all up, the likelihood that we will return the company into profitability even if the markets remain difficult is rather high,” Habben Jansen said.
Between now and the end of the first quarter, the Hapag-Lloyd CEO said the company will announce a new organization and give employees clarity on their future, and will start migrating business from CSAV systems to Hapag-Lloyd.
After that work is done, he said in the second half of the year, the company should be able to capture synergies, which he explained will come from the combined network of the two companies.
Habben Jansen said it is clear the two companies can combine and operate more cheaply on trades to and from South America on a number of services, though he also noted the two companies are already active together on a number of services today.
He also said there will be changes on some east-west routes where CSAV is present. “In most cases we will be able to absorb that on the Hapag fleet, which of course give some considerable savings,” he added.
As the companies combine, Habben Jansen does not expect a reduction in the ship capacity that the two companies manage.
“If you add up the nominal capacity of Hapag-Lloyd and CSAV you end up slightly north of 1 million TEUs. We may be slightly below 1 million TEUs in 2015, but there is not going to be a major shift in that area. The main cost savings needs to come from combining services and operating, on average, slightly bigger ships. Of course, that means some of the consortia we are operating in are going to be redesigned, but that is going to a normal thing in our industry,” he said.
Hapag-Lloyd is part of the G6 consortium and the commitment to that alliance runs until 2016. Habben Jansen said currently discussions are ongoing on how to extend that. “I think it is very likely that we will remain part of G6,” he said.
Hapag-Lloyd has partnered on many trades with its neighbor Hamburg Sud, which, like CSAV, is a powerhouse in the Latin America trades.
Habben-Jansen said, “I see no reason why we would not continue that” collaboration.
Hapag-Lloyd now has only six ships in its order books, which are part of a series of seven 9,300-TEU containerships that were ordered by CSAV and are being built by Samsung Heavy Industries in Geoje, South Korea. The first of those ships, the Copiapó, was delivered last month and will trade between Asian ports and the Persian Gulf; while the Cautín is scheduled to be delivered next week and will operate on the service linking the ports of Northern Europe with the east coast of South America.
Habben Jansen said, “If you want to be competitive in this industry over time you will have to invest in newer tonnage. We will over the next couple of quarters study a number of scenarios what we should or should not do and most likely toward the end of the second quarter we will have to take a decision as to where and how we invest. Of course, we will also look at whether it makes sense to invest in larger ships, but that needs to be coordinated closely with our G6 partners.”
As to what trades Hapag-Lloyd will emphasize going forward, Habben Jansen said, “We will stay active on all of the main trades. That is pretty much a given. We will likely try to explore a bit more whether there are some growth markets where we are underrepresented and can do a bit more.”
He noted this has an effect on what kind of ships the company orders.
“We need to make sure our fleet is somewhat flexible, because it could very well be that for a period of time, three or five years, one trade is more attractive than another and you need the flexibility to redeploy your tonnage if you decide to do so,” he explained.
While there are segments of the container industry that are becoming more commoditized, Jansen said, “There are segments in the market that are not so much commoditized and where you can still differentiate — whether it is going into certain niche markets or it is around hazardous goods or special cargo or something else—I think that is where you can still differentiate and it will stay that way going forward.
“In too many cases people, whenever they talk about shipping, they seem to be talking about moving a 40 foot dry container that moves from Shanghai to Rotterdam. But it is really a little bit more complex than that and there are many more segments in the market in which
you actually can differentiate,” Habben Jansen said.
Habben Jansen said the recent drop in oil prices is an interesting development for the shipping industry, but said “I don’t think it has an impact short term to be honest, because everybody will wait on how quickly it will potentially rebound.”
If prices do remain at low levels for an extended period of time then he said it could give companies to option to sail a little bit faster but it could also affect investment in how carriers invest in new ships because the difference in operatiing costs between a 14,000 TEU and an 18,000-20,000 TEU ship would not be as large.
