Jueves 25 de Mayo del 2017

Hapag-Lloyd seeking stability in some unconventional places

The CSAV merger won’t immediately help Hapag-Lloyd’s bottom line because the Chilean carrier is losing money

http://www.joc.com/sites/default/files/u48801/HL-CSAV-merger_v2_print.pdf

After steaming through choppy waters over the past several years, Hapag-Lloyd is looking for a safe haven. Like many of its rivals, the German carrier is seeking that haven in the form of new or enlarged alliances. But Hapag-Lloyd, one of the world’s oldest shipping companies, is taking the pursuit for stability even further, restructuring its ownership and bringing in a new CEO who will steer the carrier into new routes, new ships and a merger that will elevate the fourth-largest container line by capacity, albeit while also compounding its losses.


Rolf Habben Jansen, who took over as CEO of the Hamburg-based container line in July, faces a daunting challenge: reversing the carrier’s losses of the last 3 ½ years, overseeing the merger with Chile’s Compañía Sudamericana de Vapores, achieving targeted cost reductions through the merger and melding the two carriers’ networks of services.

Perhaps most important, he will have to decide whether to transform the merged company into a carrier that concentrates on the Latin American trades, where CSAV is a big player, or continue to focus on the east-west trades, where Hapag-Lloyd and its ancestors, the Hamburg America Line and North German Lloyd, built the business over the last 150 years. It will be difficult to do both.

Habben Jansen’s immediate task is to reverse the losses of the last few years. It swung to a 54.2 million-euro ($72.6 million) net loss in the second quarter of this year, after a 20.9 million-euro profit a year earlier. That widened the carrier’s first-half net loss to 173.3 million euros from 72.7 million euros in the same period in 2013 and came atop full-year losses of 97.4 million euros in 2012 and 28.8 million in 2011.


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“Over the next six to nine months, we will definitely focus on integrating both businesses, and making sure that we reshape the network and make optimal use of the ships that we have currently in the fleet,” Habben Jansen told JOC.com.

The CSAV merger won’t immediately help Hapag-Lloyd’s bottom line because the Chilean carrier is losing money, too. It posted a $58.5 million net loss for the second quarter, compared with a $34.3 million profit in the same quarter last year. It lost $169 million in 2013, a 46 percent improvement from 2012’s $313.5 million loss.

 

Declining freight rates and slumping global demand have hit both carriers. Unlike other carriers that have cut costs by deploying huge, fuel-efficient container ships capable of carrying more than 18,000 20-foot container units, however, Hapag-Lloyd has no ships on order — the result of being slow to recognize the need for such ships. That its five partners in the G6 Alliance have few big ships on order only increases the handicap.

Also inhibiting Hapag-Lloyd’s big-ship efforts is the heavy debt burden left by TUI, the German tourism company that was the carrier’s majority owner from 1998 to 2009 and still holds a 22 percent stake. “Hapag-Lloyd always had the best results in the industry, but TUI bought it for the tourist industry, not for the shipping business,” said a former Hapag-Lloyd executive who asked not to be identified. “What it wound up doing over 10 years was to strip 2 (billion) to 3 billion euros of capital from shipping and use it for the tourism business, and saddled it with that much in debt.”

Success in container shipping today, he said, is a direct function of the size of ships and the amount of debt. “Unfortunately, Hapag-Lloyd got disadvantaged in both,” he said.

Habben Jansen and the carrier’s new ownership structure are putting plans in place to tackle Hapag-Lloyd’s debt load, which totaled nearly 3 billion euros at the end of 2013 before the addition of new debt it will take on in the CSAV merger. But unless Hapag-Lloyd and its G6 partners can deploy ships in the 13,000- to 18,000-TEU range, it will have to find other areas to make substantial cost cuts than in the east-west trades.

The focus will be on the merger with CSAV. Hapag-Loyd has targeted $300 million in annual cost savings from synergies it hopes to realize through the merger. “The synergies are predominantly coming from two effects, one is networks and the other is overhead costs,” Habben Jansen said.

But he thinks there are other areas where the carrier can save almost as much per year on top of that target. “We will still attack bunker and fuel consumption, because I still believe that we can get better there,” Habben Jansen said. “The second point is the whole inland component.”

Hapag-Lloyd provides more door-to-door transportation services on the inland side in the U.S. and Europe than other carriers, which generally focus on more port-to-port deliveries. “That’s a second cost block,” Habben Jansen said. “We will look harder at unprofitable services, and we will also look harder at some parts of the fleet because we believe that going forward, and also in the new combined entity, we probably have an opportunity to rationalize our fleet a bit, which should have another upward effect.”

As the merger with CSAV comes together, Hapag-Lloyd will consider ordering larger, newer ships. “We will look at when we want to play and where we think we can win going forward, and on the back of that we will potentially decide to order new ships, yes or no, but we are still some months away from the final decision,” Habben Jansen said.

If Hapag-Lloyd decides to order new ships, it will do so in close cooperation with its G6 partners, so it probably won’t place any new orders until next year. “We would not do that on our own,” he said. “We will look at where we can win in three, four or five years from now and that will drive our investment decisions.”

“The key to what’s going to happen to Hapag-Lloyd is what’s going to happen with the G6,” said Lars Jensen, CEO and co-founder of SeaIntel Maritime Analysis. “With four alliances fighting it out on the east-west trades, G6 is at the bottom of that pack. They can either order all very large vessels, which we all know will be detrimental, but the G6 might also decide to stay slimmed down and use the largest vessels they have on the east-west trades, which means they will have a slower recovery.”

The latter decision would open up an avenue for Hapag-Lloyd to concentrate on the South American market, he said. “They have an opportunity to become a very large and dominant player in the South American market, but it will be difficult for them to pursue a two-pronged strategy of being a main east-west player and also being a dominant player in the South American market,” Jensen said.

Habben Jansen aims to steer the company into that market. “The north-south trades will become more important to us, because that’s where the bulk of the CSAV business is, and that’s very complementary,” he said. “It actually gives us a little bit of a better spread also of our activities over the various trades across the globe.

“We already have a reasonable presence in Latin America today, even if we are not one of the biggest ones, but after the merger with CSAV, we will, in most of those markets, be a top three or top four player,” Habben Jansen said. The merged carrier also will be among the top three or four carriers in the reefer trade with Latin America.

CSAV had a 9 percent share of total vessel capacity operated on routes to and from Latin America at the end of 2013, while Hapag-Lloyd controlled 4 percent, according to research firm Alphaliner. Their 12 percent combined share will put the merged carrier in fourth place behind Mediterranean Shipping Co., which operates 21 percent of Latin American capacity, the combined 15 percent share that Hamburg Süd will operate when it completes its pending acquisition of the second Chilean carrier — CCNI — and Maersk Line’s 13 percent.

Although CSAV will take delivery of several big ships this year, they’re geared toward the Latin America trade, with shallow drafts tailored for the continent’s shallower harbors and more reefer capacity. It will take delivery of seven new 9,300-TEU fuel-efficient vessels for the Latin trade. Hapag-Lloyd also has some ships with reefer capacity in the Latin trades.

“If you look at CSAV’s portfolio and also Hapag-Lloyd’s strategy, they are very well-suited to being a big player in the South American market,” Jensen said. “What I would fear is that if they try to be both an east-west carrier and also a South American carrier, then they might not have the focus because you need to approach the two markets separately, and, secondly, you might allocate a lot of resources to the main east-west trades, which is an expensive game to be in, and thereby deprive yourself of the opportunity to secure a position in South America.”

Hapag-Lloyd also is considering new services to the U.S. Gulf to capture a share of the boom in U.S. petrochemical exports, especially from Houston. “The whole shale gas, shale oil development will have quite a material impact on the flow of goods, and also the manufacturing capabilities of the U.S., Habben Jansen said. “As such, I do believe that will over time drive more exports from, among others, the chemical companies,” he said.

This would be a new market for Hapag-Lloyd, but not for CSAV. “We’re just going through a service review there as we speak in the context of integration,” Habben Jansen said. “We have not concluded anything there yet, but I would not be surprised if you fast-forward 12 or 18 months, that our presence there is stronger than it is today.”

He said Hapag-Lloyd is likely to rebrand most of CSAV’s long-haul international services under its own name, but is considering keeping the CSAV brand for the intra-regional Latin trades.

European Union regulatory authorities approved the merger in September, provided the Chilean carrier follows through on its agreement to quit two vessel-sharing agreements in trades linking northern Europe with the Caribbean and South America’s west coast. CSAV already had offered to withdraw from two VSAs with Mediterranean Shipping Co. on the routes, the Euroandes and the Ecuador Express services. The EU said this would eliminate the additional links between previously unrelated VSAs that the merger would have created on the two routes.

Once the merger is complete, Hapag-Lloyd will have a new ownership structure. CSAV will initially be the largest single shareholder, with a 30 percent stake in the combined entity in return for its routes and assets. It will form a controlling shareholder with the City of Hamburg and Kuhne Maritime that will together own 75.5 percent stake of the enlarged carrier. The three main shareholders will subscribe at a capital increase of 370 million euros within 100 days of the closing, to which CSAV will contribute 259 million euros. That will bring CSAV’s share of Hapag-Lloyd to 34 percent and bring the controlling group’s shareholdings to 81 percent. TUI’s stake will shrink to 15 percent.

The combined carrier plans to raise another 370 million euros through a stock exchange offering within a year of the merger’s closing. The additional capital requirement reflects its undercapitalized position.

Habben Jansen, 48, comes to the German liner company, with a different background from the usual liner executive. He was CEO of Damco, A.P. Moller-Maersk’s logistics division, for the last five years. In addition, he is Dutch by birth, rather than German, and spent most of his career in logistics, where he was focused on customer needs, rather than on liner operations.

“There’s not that much difference,” he said. “Both are in the same industry. Damco is a service provider, while Hapag-Lloyd is a transportation provider. The only difference is that one is Danish and the other is German. Both are focused on the customer.”

 

Fuente: Journal Of Commerce

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