Media outlets a few weeks ago, once again, began reporting that Singapore-owned investment company Temasek Holdings is looking to sell Neptune Orient Lines, parent company of ocean carrier APL.
Like many liner companies, APL has been hemorrhaging cash since 2008 when the worldwide economic downturn brought revenues crashing down across the ocean carrier industry. According to data from BlueWater Reporting, APL has posted annual losses totaling $1.31 billion since 2008.
APL has managed to turn a profit for two consecutive quarters now, despite year-over-year revenues declining, indicating the company is making better decisions about which revenue streams it pursues. But after years of sustained losses, the company will have to continue to show improvement for analysts and shareholders to be confident in its long-term profitability.
This begs the question, who would be interested in acquiring NOL? And, at what valuation would such a transaction make sense?
When similar rumors swirled a few months ago, Maersk Line was mentioned as a potential suitor because of the 29 new, larger ships APL has added to its fleet since 2011. A newer, more efficient fleet should make NOL a desirable target for acquisition, but this may not be the case for Maersk, as the Danish container giant has placed several newbuild orders of its own in the last few months.
APL has also been linked with fellow G6 Alliance member OOCL. Although C.C. Tung, chairman of Orient Overseas International Ltd., parent of the Hong Kong-based carrier, said a tie-up was unlikely, he admitted such a merger would be more realistic than an agreement between carriers belonging to separate alliances.
Amid the latest round of rumors, German line Hapag-Lloyd—also a member of the G6 Alliance—was reportedly shopping investment bankers to advise it on an initial public offering, fueling speculation it could use the proceeds from an IPO to make Temasek an offer.
Former NOL Chief Executive Officer Ron Widdows told American Shipper in a recent interview he had actually attempted to acquire Hapag-Lloyd, but just last year Hapag-Lloyd was rumored to be interested in a merger with fellow German carrier Hamburg Süd. Widdows was one of several U.S.-based executives that were eventually phased out following the purchase of APL by NOL in 1997, a move many blame for the carrier’s subsequent decline in service and revenues.
Hamburg Süd is mentioned regularly when people talk about M&A in the industry, because it is one of the few global carriers that hasn’t joined a major alliance and has an extensive north-south service network, which could complement the east-west trades covered by most top carriers.
The chart below, built with data from BlueWater Reporting’s Trade Route Deployment Report, compares the weekly deployed capacity of direct services in the transpacific trade for APL and the abovementioned potential buyers.
Between Asia and North America, APL deploys an estimated 17,684 TEUs on a weekly basis, about 4.5 percent of the total 397,186 TEUs deployed in the trade each week. Maersk Line and OOCL both currently deploy considerably more capacity in the trade at 28,245 TEUs and 26,132 TEUs per week, respectively. Together with APL, Maersk would control 11.56 percent of the total market and OOCL 11.03 percent, immediately surpassing Evergreen Line for the top spot in the trade. Hapag-Lloyd has slightly less deployed capacity than APL at 16,433 TEUs, but a merger of the two lines would yield a combined 8.59 percent market share, which would still amount to the second highest overall individual share. Hamburg Süd currently only deploys 1,588 TEUs per week in the transpacific, so a tie-up with APL would provide significantly more access to the trade.
For now, it’s all just speculation, but APL’s market position in the transpacific, as well as the Asia-to-Middle East/Indian Subcontinent and intra-Asia trades, could make it an attractive acquisition for a carrier like Hamburg Süd looking for network diversification and growth. Carriers that already have a strong foothold in those lanes might also be interested in NOL as a way of further growing market share. That said, an acquisition of that size would require a massive integration of networks and systems, including APL’s terminal business, and it will likely be difficult for Temasek to convince anyone to purchase NOL for a price that makes sense for both sides.
Meyer is web editor of American Shipper and a research analyst with BlueWater Reporting. He can be reached by email at bmeyer@shippers.com.
This column was published in the September 2015 issue of American Shipper.