Hapag-Lloyd, Hamburg Süd merger

German carriers Hapag-Lloyd and Hamburg Süd have  confirmed that they are exploring the benefits of a possible  merger. If the marriage goes ahead, what might it mean for the  two companies’ customers and does the move suggest more  industry consolidation to come?

On the face of it a straight 50-50 merger looks like a very sound  idea with few obvious downsides aside perhaps from some staff  attrition where the organisations overlap, such as reefer and Latin American trades.

 

The cultural fit is good and the service networks  complementary. Hapag-Lloyd is predominantly East-West trade  oriented as a member of the Grand Alliance (G6 in Asia- Europe) and Hamburg Süd being a non-alliance affiliated North-

South trade specialist. This should not upset the competition authorities.

Drewry counts seven joint Hapag-Lloyd / Hamburg Sud services: one transatlantic; two Europe-West Coast South America; two North America-Oceania; one Asia-Oceania; and  one Europe-Mideast/Indian subcontinent. Meanwhile, both  carriers share a presence, either in a ship operating or slot charter basis on 13 more liner strings within their individual  service networks. This partial service alignment would help to smooth the network integration if a deal goes ahead this time.

The merged entity would become the world’s fourth largest container operator with a ship capacity of approximately 1.05 million teu, based on each carrier’s existing fleet. Moreover, the merged company’s orderbook would consist of 32 newbuilds with an aggregate capacity of about 220,000 teu.

Apart from the operational benefits, a merged entity will be able to achieve higher cost efficiencies from procurement, bunkers, chartered vessels, as well as route and network optimisation.Perhaps more importantly, the merged $12 billion revenue company would get better access to both bank debt and the capital market.

The German tryst is not the only merger under discussion. Talks have also been on-going between Chinese carriers Cosco and China Shipping Container Lines (CSCL), leading some to wonder whether these year-end flirtations herald a new round of industry consolidation.

Regardless of how these discussions proceed, Drewry does not believe they will spark off a new wave of M&A activity. Shipping lines do not have the resources to fund such deals, nor the will to take on complex organisational integrations. Besides, valuations will be a challenge, as no target company will appreciate the lack of value an acquirer would be duty bound to attribute to it.

Drewry believes that consolidation in the industry will only take two forms: either corporate failure, or an acceptance that exit from liner shipping is the only sensible strategy; or a defensive merger. The Hapag-Lloyd-Hamburg Süd merger fits the latter.  The fact that there have been no significant takeovers in over six years since AP Moller-Maersk purchased P&O Nedlloyd and  Hapag-Lloyd bought CP Ships, suggests that there isn’t much of an appetite for such deals.

Fuente Drewry