Robin Byde Comments: Shipping Groups Explore Merger

December 19, 2012, Financial Times

Germany’s two largest container shipping companies are in talks over a possible merger that would create the ailing sector’s fourth-largest company by capacity.

Hapag-Lloyd and Hamburg Süd said in a brief statement they were investigating “if, and under what conditions, a merger of both companies would be of interest”. Both companies declined further comment.

The talks between the two Hamburg-based companies are said to be at an early stage and it is unclear how a deal would be structured.

The combination would create the world’s fourth largest container shipping company with capacity of more than 1m TEU (20ft equivalent units), almost €11bn in revenues and a fleet of about 250 vessels. Its scale would allow it to better challenge larger rivals such as AP Møller-Maersk’s Maersk Line and Mediterranean Shipping Company.

Since the onset of the financial crisis in 2008 the container shipping industry has been hurt by high fuel costs and overcapacity amid falling demand and rates, caused in part by the delivery of a surfeit of new ships ordered in the pre-crisis boom years.

Klaus-Michael Kuehne, head of Kuehne & Nagel, the Swiss-based logistics group and a leading shareholder in Hapag-Lloyd, has previously voiced his support for a merger of Hapag-Lloyd and Hamburg Süd, the world’s sixth and 12th-largest container shipping companies by capacity respectively.

Any deal would be the first in the industry since 2006. Consolidation in the sector has been slow because of the preponderance of private companies, often controlled by families reluctant to give up control.

“These are mid-tier companies that need to consolidate,” said Robin Byde, shipping analyst at Cantor Fitzgerald in London. “This is an industry with ten major players when a sensible number is about six.” Mr Byde said more consolidation was likely in the next few years with the outlook for the industry over the next two to three years bleak.

Hamburg Süd, owned by Germany’s Oetker Group, a family-owned company with food, beverage and banking interests, is said to have long resisted a tie-up with its Hamburg-based rival, even though the two companies have a good strategic fit. Hamburg Süd main focus is the European to Latin America market, the smallest of the global trade routes.

Oetker could not be reached for comment but it is understood the continued poor outlook for the industry has made the group more open to the idea of a merger.

Moody’s, the credit rating agency, downgraded Hapag-Lloyd in October and warned that freight rates might not recover fully for a “prolonged period of time”.

Hapag-Lloyd is 78 per cent owned by the Albert Ballin consortium, which includes Kuehne & Nagel and is led by the city of Hamburg. Tui, the German travel group, has the remaining 22 per cent stake. Its current ownership structure is the result of a politically inspired move four years ago to keep the group in German hands after Singapore’s Neptune Orient Lines tried to buy Hapag-Lloyd.