After its merger with the Chilean company Compania Sud Americana de Vapores (CSAV), Hamburg-based Hapag-Lloyd is upbeat about Asia and, particularly, China which is expected to provide a strong impetus to its business. Latin America is another attractive market for the company whose position in that region is further strengthened as a result of the “huge synergies” from the merger.
Rolf Habben Jansen, Hapag-Lloyd’s chief executive, who was recently in New York with a team of executives, averred that the merger would strengthen the company’s operations in Latin America, besides augmenting its services in China traffic with Asia and beyond. Hapag-Lloyd, which has become the world’s fourth largest container shipping company, was expecting greater shipping interaction in the emerging markets, particularly in the intra-Asia and Africa trade, though it would continue with its past concentration on the markets of the developed countries.
Jansen also spoke of the opportunities emanating from the creation of the ASEAN Economic Community (AEC) which will be formed this year.
“The creation of the ASEAN Economic Community is being viewed positively by the world’s shipping companies, which envisage a larger, more integrated market of 600 million consumers that would attract shippers and shipping lines.
“The creation of the AEC will further boost the intra-ASEAN and intra-Asian trade. Indeed, we are upbeat not only about the AEC but the entire Asian continent,” Jansen told Asia Cargo News, adding that Hapag-Lloyd had a strong presence in the ASEAN region, and maintains offices in Kuala Lumpur and Singapore. Hapag-Lloyd even operates container vessels named after a number of Asian cities, including the Singapore Express, Shanghai Express, Tokyo Express, Kuala Lumpur Express, Colombo Express and others.
While underscoring the importance of Asia as a growth region, Jansen singled out China and India as two markets inherent with strong growth potential.
“I am a big believer in the power of China, which has done some impressive things and which will continue to grow. Although we are under-represented in India, we see good potential in India and are interested in that market as well,” Jansen said.
Commenting on the port congestion at Asian ports, Jansen expected the situation in Asia to ease in 2015 following infrastructure expansion and modernization “after some congestion in 2014.” Singapore and Hong Kong still pose some difficulties because of traffic and other reasons.
“I am upbeat about Asia. The problems on the west coast of the United States should go away fast,” Jansen predicted.
Many German shipping lines and operators are unnerved by the crisis in the Ukraine and its impact on trade with Russia. The Hamburg port – it touts itself as Germany’s “gateway” to Asia, but also relies on trade with Russia which, after China, is the port’s second biggest market – did not feel any serious impact of the Ukraine crisis on its traffic. “Nor did Hapag-Lloyd feel any serious impact of the Ukraine crisis, because Russia is not our major market,” maintains Jansen.
Meanwhile, the merger between Hapag-Lloyd and the CSAV recently approved by all the relevant global authorities, is expected to produce “huge synergies,” Hapag-Lloyd representatives told Asia Cargo News. They expect annual savings of at least US$300 million resulting from optimization of networks, productivity improvements and cost reductions. The merger will yield a fleet of about 200 vessels with a total capacity of approximately 1 million teus, transporting some 7.5 million teus each year, and will set up its fourth regional headquarters in Valparaiso, Chile. With revenue of around US$12 billion, the combined entity will join the big league of international shipping companies.
Describing the merger as a “great happening,” Jansen said: “Hapag-Lloyd’s strength in Asian traffic and on the North Atlantic, combined with CSAV’s strong position in Latin America, will elevate us to become the leading shipping company in this region, and thereby be able to offer our global customers an even more attractive network and wider range of products.”
He said that the company’s ability to compete will also be significantly enhanced by closing the gap to the top three of the industry, adding that there would be “no major changes to the way we work until the transition to the Hapag-Lloyd systems towards the end of the first quarter 2015.”
In addition to integrating CSAV’s container business into Hapag-Lloyd, there are also plans to strengthen the company by raising capital of €370 million (US$427 million), with CSAV holding a share of €259 million (US$299 million) and Kuehne Maritime €111 million (US$128 million).
Asked if Hapag-Lloyd would go for fleet renewal, Jansen replied that “fleet renewal does not mean ordering new vessels on a short-term basis. However, we will review on a mid-term basis. We will also discuss with our partners in the G6 alliance.”
The G6 alliance was formed three years ago with shipping lines in The Grand Alliance (TGA) and the New World Alliance (NWA) coming together to form this new grouping.
The new Far East-Europe alliance brought together six carriers – NYK, Hapag-Lloyd and OOCL (from the TGA) and APL, HMM and MOL (from the NWA) – offering nine services which, the members claim, provide fast transit times and improved port coverage, involving over 90 ships covering over 40 ports in Asia, Europe and Mediterranean and including Bohai and Baltic loops.
The G6 alliance with the new partnership would create one of the leading networks in the Far East-to-Europe and Far East-to-Mediterranean container shipping markets, according to a joint statement issued in Hamburg, Seoul, Tokyo, Hong Kong and Singapore.
Ordering the new ships will also be discussed with the partners so as not to “flood the market” with excessive capacity. “The big vessels that are being built are indeed the trend,” Jansen said. On the question of ordering new ships, Jansen said one had to be a “little bit cautious” considering that after a year of integration and the changed routes and services “it’s probably better to focus more on (capacity) utilization rather than on deploying more ships.”
Hapag-Lloyd is evaluating its need for mega-ships and will make a decision on new orders in the second quarter of 2015. He said new ship orders were being discussed with the G6 partners.
Jansen revealed that in an attempt to cut costs he would reflect on discontinuing certain unprofitable services, including ocean loops and inland services, in the US and Europe. Hapag-Lloyd’s “distinct advantage” lay in providing more door-to-door inland services in those markets than other carriers, which are increasingly shifting towards port-to-port services.
Asia, where the company now employs nearly 1,200 people after the merger, accounts for 25% to 30% of its workforce and generates a similar percentage of the revenue, which is expected surge in five to 10 years, even though the company’s intra-Asia shipping business is still small and has yet to come up with a market-specific growth strategy.
Hapag-Lloyd’s “top priority” is to complete the integration by the middle of next year and return to profitability as soon as possible, after recording net losses of some €428 million (US$494 million) in the past three-and-a-half years.
Jansen said that Hapag-Lloyd was expecting to achieve profitability in 2016; a planned IPO in the German stock market by the end of 2015 may not take place because this year will be a “year of transitions,” Improving market fundamentals and declining fuel prices are putting upward pressure on freight rates in the mid-term, he maintained.
By Manik Mehta
International Correspondent | New York