It is perhaps ironic, given the continuing economic crunch being felt across Europe, that it is the region’s carriers that have most firmly entrenched their positions at the top of the carrier league.
This positioning has been accompanied by a profound change in the psychology of European box carriers, a process that has been most evident at Mediterranean Shipping Co (MSC), which has entered 2015 with what appears to be a new ethos of embracing the Internet age and facing the public at large.
This may be to do with the recent change at the top of the company, which found Gianluigi Aponte effectively making way for his son Diego to take over the day-to-day running of the company. But it is likely, also, to be a result of the fact that MSC is now in a major alliance with Maersk Line, which has been the industry leader in the way it has interacted with the wide supply chain and beyond. The recent fanfare with which MSC greeted the arrival of the world’s largest container ship, 19,224 teu MSC Oscar, is a case in point.
It is not only the vessels that are bigger. The companies themselves are expanding, too. With the takeover of Compañía Sudamericana de Vapores (CSAV) by Germany’s Hapag-Lloyd, the four largest container shipping lines are now all European – Maersk, MSC, CMA CGM and Hapag-Lloyd.
So whatever the performance of the wider European economy, its carriers appear to be in relatively good health. And what really sets them apart from their Asian rivals is the fact that they have acted decisively in the face of high operating costs and volatile freight rates.
The only other European carrier in the list of the 20 largest global shipping lines, Hamburg Süd, has also been involved in merger and acquisition activity as it prepares to take control of Chilean line Compañía Chilena de Navegación Interoceánica (CCNI). This, in addition to its fleet expansion programme this year, should propel it to become the ninth largest carrier, measured by capacity operated, for the first time in its history.
The US$160 million deal was originally scheduled to have been completed by the end of last year. According to sources, it still has to obtain some regulatory approvals. Should it be given the green light, however, the deal will result in 17 container vessels amounting to 60,000 teu capacity controlled by CCNI being added to the Hamburg Süd fleet.
During 2014, CCNI undertook a fleet rationalisation process and the total capacity under its control fell by 19 per cent, leaving it with 12 units amounting to 34,845 teu at the end of December. However, this year it is set to receive four new ships of 9,030 teu, currently under construction at Hanjin Heavy Industries Corp in the Philippines (HHIC-Phil), which will be chartered to Hamburg Süd on 12-year charters. The need for consolidation was recognised last year by CCNI president and chairman Beltrán Urenda Salamanca, who said: “We have come to the conclusion that the future is to get associated or die.”
The moves for CCNI and CSAV by Hamburg Süd and Hapag-Lloyd respectively came after merger talks between the two German lines had ended unsatisfactorily. It was not the first time the two had discussed a tie-up, and it may well not be the last, if influential Hapag-Lloyd shareholders have their way. The ink was barely dry on the contract to take over CSAV when significant shareholder Klaus-Michael Kuehne was already talking about the next potential merger for the lines – and it was principally due to Mr Kuehne’s urging a few years ago that Hapag-Lloyd and Hamburg Süd management sat down together.
Meanwhile, Hamburg Süd’s fleet expansion programme remains significant, if understated, according to industry analyst Alphaliner. Altogether, its fleet increased capacity by 82,000 teu last year – an 18 per cent increase – thanks to the arrival of 14 new ships boasting a total capacity of 118,000 teu. Six of these were the Hyundai Heavy Industries (HHI)-built Cap San vessels, which the line claims have 9,600 teu capacity but which Alphaliner believes are actually 10,500 teu designs. This is a view that was supported last year by Container Shipping & Trade’s fleet statistics analyst Barry Luthwaite.
Over the course of last year Hamburg Süd also received five Cap San class units of between 8,714 teu and 9,034 teu. All of its latest deliveries are to be deployed on its service from South America running to Europe and Asia. This year it is poised to receive one more 10,500 teu vessel, with two further units due for delivery in 2016, while one more 8,700 teu ship is also due to be delivered this year.
Should the CCNI acquisition go through, it is likely that it will mean the end of an identifiably Chilean container carrier. The CSAV name is now all but a memory, while Hamburg Süd’s acquisition strategy has hitherto been to absorb its purchases into the Hamburg Süd brand. Of the 15 acquisitions it has made since 1985 just one – Brazilian cabotage operator Aliança – has managed to retain its own brand. All the others have been subsumed.
That strategy stands in contrast to CMA CGM, which recently continued its own expansion with the announcement that it has reached an agreement to buy German shortsea specialist Oldenburg-Portugiesische Dampfschiffs-Rhederei (OPDR) from the Berhard Schulte Group. In this case it is expected that the Hamburg-based intra-Europe carrier will continue to operate as a distinct brand.
The niche carrier operates five owned 700 teu container ships, plus three chartered-in vessels of between 690 teu and 1,008 teu on a network of liner services between North Europe, Spain, Portugal, the Canary Islands and North Africa. It also owns and operates two conro vessels on services between the Canary Islands and the Spanish mainland, and has extended its range to Russia and the Baltic states via co-operation with Finland’s Containerships and German feeder operator Team Lines.
CMA CGM sees that synergies could be achieved with one of its other intra-Europe operators, UK-based MacAndrews & Co, and this is the motivation for the purchase of OPDR. CMA CGM group chief executive Farid Salem said: “This new acquisition reinforces the group’s presence on the growing intra-Europe shortsea transportation market. This is a continuation of our strategy to broaden our regional network, a strategy which began with the acquisition of MacAndrews in 2002. As with MacAndrews, we plan on maintaining and developing the OPDR company, as well as creating new synergies with both MacAndrews and the CMA CGM group.”
The combined volumes of the two intra-Europe carriers are impressive. According to CMA CGM, OPDR was forecast to handle 240,000 teu last year, and MacAndrews 290,000 teu, making the combined company a force to be reckoned with – especially considering the further synergies that might be achieved with CMA CGM’s own reefer-heavy services between Morocco and Northern Europe.
But it is not just through acquisitions that Europe’s carriers have strengthened their hands. They have also quickly learned to put aside the mistrust with which liner companies viewed each other, and have signed a slew of alliance agreements.
Partly, this has been done out of necessity. With the ongoing expansion of the fleet of ultra large container vessels, forming major east-west alliances was considered the best way – in conjunction with slow steaming techniques – for the industry to collectively manage a looming overcapacity crisis.
The first concept was the P3 Alliance of Maersk, MSC and CMA CGM. The French carrier was subsequently jettisoned from talks after Chinese anti-monopoly regulations ruled that for the trades out of China the alliance effectively represented a merger, and that its market share was too big.
That was replaced by the 2M Alliance of Maersk and MSC, while CMA CGM teamed up with United Arab Shipping Co (UASC) and China Shipping Container Lines (CSCL) to form the Ocean Three (O3) alliance. But perhaps the most interesting move to date has been the joining up of the O3 partners with Hamburg Süd. This has seen the east-west trade alliance add a series of north-south destinations, and gives the German carrier access to capacity on the Asia-Europe, transpacific and transatlantic trades, while providing destinations in Latin America for UASC to tap into.
Initially, the co-operation will be in the form of slot exchanges, although Hamburg Süd said it would look for “vessel deployment opportunities,” and added that there was “further geographic scope for co-operation currently under discussion.” While the deal was between UASC and Hamburg Süd, it is likely to involve the other O3 carriers.
CMA CGM and Hamburg Süd have also signed a similar deal that will see the two deepen their existing co-operation on the Latin America and Caribbean trades and – more importantly – develop a new pendulum service connecting Asia, the Caribbean, the US East Coast and North Europe. The service will be jointly operated with UASC on the transatlantic side, thus stretching the O3 co-operation into the transatlantic trade, and will almost exactly mirror the O3’s Asia-US East Coast service that goes via Suez.
Given the sheer size of the asset portfolios of large container shipping lines, genuine takeover opportunities are generally few and far between, and many of the smaller targets have already been snapped up.
However, all these moves to consolidate and extend carrier networks have propelled the industry into a new paradigm of service sharing. Given that many of these deals have been designed in the headquarters of European carriers, they have underscored the agility and flexibility of these lines to react to the new norms of container shipping. It will be interesting to see how their Asian rivals react. CST