Hapag Lloyd’s merger may not be its last

The prospect of a merger between CSAV (Compañía Sud Americana de Vapores) and Hapag Lloyd does not come as too much of a surprise even though it appears that CSAV is the second choice of partner for the Hamburg based line.

The two companies signed a memorandum of understanding last Wednesday (22/1/2014) to combine CSAV’s container shipping business with Hapag Lloyd, with the Chilean company owning 30% of the new company. The deal concerns only CSAV’s container shipping division, not its other bulk and car-carrier operations.

Hapag Lloyd has made little secret of its wish to merge in some form with fellow German line Hamburg Süd, but the latter’s owning family seems to be unimpressed. Looking at the underlying logic of Hapag Lloyd, the CSAV option is not that surprising. CSAV has a presence in the sorts of ‘southern’ routes that Hapag Lloyd was looking for from Hamburg Süd to complement its strength on east-west trades.

According to figures from the consultancy Alphaliner, the new entity will be the fourth largest container shipping line, with 5.6% of the market and a capitalisation of US$5bn/€3.7bn.

Yet as Hapag Lloyd’s management and shareholders have made clear, even the prospect of merger with Hamburg Süd was not enough. Key shareholder Klaus Michael Kuehne’s stated last year that his long-term aspiration was some form of relationship with Neptune Orient Line (NOL), which owns APL. This, Mr Kuehne said would provide the scale and global scope needed to compete in the new market for container shipping. NOL, however, like Hamburg Süd has retained its independence.

The logical implication might be that Hapag Lloyd may have further to go in terms of mergers and acquisition. Indeed Chief Executive Michael Behrendt commented to Reuters last year that his aim was, “To create something bigger by merging several companies…it is my goal that we can catch up with the top three. I may not be able to achieve this during my time, but perhaps make a step in that direction”.

The container shipping sector continues to bleed with Zim Lines having just relinquished two thirds of its equity in the company to its creditors and many of the East-Asian lines continue to suffer losses. Possibly more frightening is the prospect of the continuing ability of Maersk to undercut its rivals through its economy of scale. This may increase the pressure on company owners to face the otherwise unpalatable prospect of selling part or all of their companies, triggering what must surely be the inevitable further consolidation of the sector.