Maersk said it expects full approval of the acquisition to take most of 2017, but if consummated, it will boost the Danish carrier’s overall fleet capacity from 3.14 million TEUs to 3.76 million TEUs, growing its share of the world container fleet from 15.7 percent to 18.6 percent.
The deal capped a landmark year for consolidation in the container shipping industry. In 2016, CMA CGM acquired APL parent Neptune Orient Lines, and COSCO and China Shipping merged; Hapag-Lloyd announced it would acquire United Arab Shipping Co. (UASC); and Japan’s “Big 3” carriers - NYK Line, Mistui O.S.K. Line (MOL) and “K” Line - announced plans to form a container shipping joint venture that will begin operations in 2018.
As a result of those deals, and the bankruptcy of then-seventh largest carrier Hanjin Shipping, the vast majority of the container shipping industry, at least in the major east-west trades, will be controlled by just 12 carriers operating in three alliances.
The acquisition, which is subject to a final agreement and the relevant regulatory approvals, was described as an all-cash deal, but the exact purchase price was not revealed.
Maersk said it “expects to communicate further details following the approval of the sales and purchase agreement, expected early in the second quarter of 2017. The acquisition is subject to a satisfactory due diligence, final agreement and subject to regulatory approval in, amongst others, China, Korea, Australia, Brazil, the United States and the EU.” Maersk said it will work closely with authorities and expects the regulatory process to last until the end of next year.
Southern Exposure. Hamburg Süd is presently the world’s seventh largest container shipping line by fleet capacity, and a leader in the north-south trades. Its services connect both Latin America and Australia and New Zealand with North America, Europe and Asia.
Søren Skou, chief executive of Maersk Line as well as parent A.P. Møller-Maersk, said the company plans a “light-touch integration model” and will maintain Hamburg Süd as a separate brand. This has been Maersk’s strategy in all of its recent regional acquisitions, such as Safmarine in the Africa trades, MCC in the intra-Asia market, and Seago Line in the intra-European trades. In the east-west trades, an area in which Hamburg Süd has been expanding in recent years, Skou said Hamburg Süd's volumes would be included in the 2M Alliance, though it’s not clear yet how those routes will be branded.
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“Global container liner shipping has been generating losses for years in the face of rising overcapacity,” it said. “Nevertheless, Hamburg Süd has performed well compared with its competitors. It has grown clearly in excess of the market and has financed the expansion of its network as well as the ship and container fleet largely from its own cash flow.
“The owners and management of Hamburg Süd must, however, recognize that active participation in the consolidation process of the sector currently taking place would entail an even higher capital requirement,” the group added. “This would, in addition, make the balancing of risk within the Oetker Group business portfolio more cumbersome.”
Hamburg Süd provides about half the annual revenues of its longtime owner, which is also involved in the food and beverage business.
For its part, Maersk said it believes it can create an “unmatched product” in the Latin America reefer trades and achieve major cost synergies by combining the networks of the two companies and reducing variable costs thanks to increased buying power. Subsidiary Maersk Container Industries opened a new factory for manufacturing refrigerated containers in Chile in 2015.
Diverse Network. According to Lars Jensen, chief executive officer of SeaIntelligence Consulting in Copenhagen, the service networks of Maersk and Hamburg Süd are “a very good match - the key here is the depth and breadth of the combined network.” He noted the tie-up allows for an especially diverse network in Latin America, providing cargo owners with a broad product offering and reducing overall costs for the combined entity.
Hamburg Süd operates 130 container vessels with an overall capacity of 625,000 TEUs. It has 5,960 employees in more than 250 offices across the world and markets its services through the primary brand, as well as its two sister companies: CCNI, which is headquartered in Chile, and Brazil-based Aliança.
“As for regulatory scrutiny, my view is that they must have thought this through, and if there are a few specific locations where this becomes an issue, the solution might be to divest of minor portions,” Jensen said. “I do think that in terms of culture, the two companies are relatively compatible, and given the 'light-touch' integration announced by Maersk, this should not prove to be a major issue.”
For Jensen, however, “the most interesting part of this takeover is when seen in combination with all the other consolidation going on,” he said. “Essentially, the main carriers will in the next one to two years be competing on their ability to get synergies out of the mergers, a completely different competitive parameter than the ‘usual’ price and cost competition.”
Neil Dekker, director of research, containers at the London-based consultants Drewry said in a recent interview with American Shipper the current wave of ocean carrier consolidation won’t solve all the industry’s problems, at least not right away.
“The industry is undergoing the most intense period of M&A in its history,” he said. “We are moving from a top-20 player scenario to one where there will be as many as seven or eight players only and this is as a direct result of the poor returns in the industry since the recession of 2008-2009.
“Scale seems to be the driving force for the biggest players right now and with the exception of MSC, which remains intent on organic growth, all of the largest players have had an appetite for acquisition. The imminent failure of Hanjin has finally proven that weak balance sheets will be punished. The re-structuring of the industry will impact freight rates, but this will not overnight bring about higher or more stable rates. In the short-term, the rates should be even more volatile as many shippers rethink their risk strategies and negotiate new deals with new carriers,” he added.
“The removal of certain players from the arena should ultimately help the industry as there are fewer companies to pump weak rates into the market, and as we eventually come out of the present trough by 2019-2020, only the strongest companies will survive,” Dekker predicted.
Panjiva said the addition of Hamburg Süd's business on the major east-west trades would only modestly increase the 2M Alliance’s market share. On a proforma basis, 2M's share on U.S. import trades, for example, would grow from 15.1 percent to 16.8 percent if Hamburg Süd were to become part of Maersk today, still less than the proforma share of the proposed OCEAN Alliance. Still, it noted the U.S. Federal Maritime Commission (FMC) is under pressure to take a stricter stance on alliances.
FMC Chairman Mario Cordero said that although it does review vessel sharing agreements, the commission is not responsible for anti-trust reviews of mergers.
“Another market of concern is Latin America, one of Hamburg Süd's strongest market areas,” Panjiva said. “In Brazil it held a 25 percent share in the third quarter of shipments into and out of the country. The addition of Maersk’s 10.6 percent to make a total 35.6 percent share may make the combination unacceptable to Brazilian authorities.
“This could be solved, however, by disposals or commitments on market share,” it added. “There has already been a process of consolidation of market power among larger rivals, the largest of whom would be MSC at 20.2 percent, with the top five jointly holding 79.9 percent.”
Both Hamburg Süd and Maersk, including its sub-brand SeaLand, are already major carriers in the Latin American markets.
Fellow FMC Commissioner William P. Doyle also told American Shipper, “We’ll take it one step at a time as to the appropriate regulatory review by the U.S.,” noting that “some of Hamburg Süd's services would appear to complement the new SeaLand that is operating services from all three U.S. coasts and between Latin-South America.”
Bottom Line. In 2015, Hamburg Süd generated revenues of about $6.73 billion, with $6.26 billion stemming from its container line activities and the remainder from its bulk shipping business, which Maersk is also acquiring.
“The timing of this transaction is, we believe, right from the point of view of the cycle, the state of the industry and not least our own position,” Skou said. According to him, Maersk has become the most competitive carrier, with industry-leading margins driven by lower costs and a strengthened information technology and process platform.
From Dekker’s perspective, “Weak demand growth coupled with overcapacity has led to the demise of the independent loops of old and the alliance structures are now well entrenched in the key east-west trades. From next year, agreements will spread into the Asia to Mid-East and Red Sea trades, which is a positive. This is the one east-west trade where capacity has not been addressed properly and despite decent volume growth, ocean carriers are not profitable.