Another Major Merger in Global Container Shipping Lifts Maersk TEU Freight Capability Even Higher

DENMARK – GERMANY – WORLDWIDE – Maersk Line, the sectors biggest player, has reached an agreement with the Oetker Group to acquire the world’s seventh largest container shipping line, Hamburg Süd, subject to final agreement and regulatory approvals. Expected to close in late 2017, the acquisition could mean that Maersk would have to rethink its attempts for the troubled Korean shipper, Hyundai Merchant Marine (HMM) to join the 2M Alliance between Maersk and MSC. Consolidations and acquisitions have been key to the industry in recent years as the global ocean freight trade continues face overcapacity and falling rates with a tough future ahead.

Though neither party have confirmed the financial details of the possible acquisition, industry analyst Alphaliner believes that the Oetker Group was asking for somewhere around €5 billion for the German shipping line that it has controlled for 80 years. With the acquisition, Maersk Line will have container capacity of around 3.8 million TEU after adding Hamburg Süd’s 625,000 TEUs on 130 container vessels. Maersk’s global capacity share will increase drastically from its already formidable 15% to an impressive 18.6% market share with a combined fleet of 741 vessels with an average age of 8.7 years. Søren Skou, CEO of Maersk Line and the Maersk Group said that:

“Today is a new milestone in Maersk Line’s history. I am very pleased that we have reached an agreement with the Oetker Group to acquire Hamburg Süd. Hamburg Süd is a very well-run and highly respected company with strong brands, dedicated employees and loyal customers. Hamburg Süd complements Maersk Line and together we can offer our customers the best of two worlds, first of all in the North - South trades.”

The deal will see Maersk take control of Hamburg’s complete operation, including all activities, subsidiaries and principal assets. Hamburg Süd has roughly 6,000 employees and, with revenues of around €6.1 billion in 2015, contributed just under 50% to the total sales of the Oetker Group last year. In a statement the Oetker Group said:

“Global container liner shipping has been generating losses for years in the face of rising overcapacity. Nevertheless, Hamburg Süd has performed well compared with its competitors. It has grown clearly in excess of the market and has financed the expansion of its network as well as the ship and container fleet largely from its own cash flow.

“The owners and management of Hamburg Süd must, however, recognise that active participation in the consolidation process of the sector currently taking place would entail an even higher capital requirement. This would, in addition, make the balancing of risk within the Oetker Group business portfolio more cumbersome.

“The owners of the Oetker Group have therefore decided to put Hamburg Süd in the hands of new owners. The global market leader Maersk is, in their view, the ideal partner to preserve and further develop the shipping company’s successful business model.”

The acquisition is subject to a satisfactory due diligence, final agreement and subject to regulatory approval in amongst others China, Korea, Australia, Brazil, the United States and the EU. Maersk Line will work closely with the authorities. Until the deal has been finalised, both Hamburg Süd and Maersk Line will continue business as usual.

Expect to see Maersk rationalise, and divest itself of some parts of the new acquisition. In addition to its box carrying vessels Hamburg Süd owns substantial tramp, product tanker and other operations, including 250 offices around the world and, with AP Møller-Mærsk A/S recently splitting its container and energy operations, there will be natural homes for some parts and presumably an overabundance of resources in others.

The deal could almost certainly face opposition from the US officials, or at the very least trepidation, after Acting Assistant Attorney General of the Antitrust Division of the US Department of Justice, Renata Hesse urged the Federal Maritime Commission to look more closely at the THE Alliance which consists of Hapag-Lloyd, K Line, MOL, NYK, Yang Ming, and UASC. Hesse bought up a similar plea before the recently approved Ocean Alliance which covered many of the same concerns. In her letter to the FMC, Hesse said:

”THE Alliance Agreement raises a number of significant competitive concerns, particularly as it comes on the heels of the recently approved OCEAN Alliance. The creation of these two new alliances will result in a significant increase in concentration in the industry as the existing four major shipping alliances are replaced by only three. This increase in concentration and reduction in the number of shipping alliances will likely facilitate coordination in an industry that is already prone to collusion. For example, four companies (three of which are slated to join THE Alliance) have pled guilty, and eight corporate executives have been indicted or pled guilty in connection with a worldwide conspiracy involving price fixing, bid-rigging, and market allocation among providers of roll-on, roll-off shipping.”

Hesse raised many valid points particularly in regard to previous collusion activities and violations of the Shipping Act of which many of the companies involved the alliances have been found guilty. Hesse also previously highlighted in September that Hamburg Süd was the only one of the top 15 ocean carriers to not be in an alliance.

The three resulting alliances will be particularly dominant on Transpacific-U.S. routes: the OCEAN Alliance, the THE Alliance, and the 2M Alliance (prior to any changes) are projected to each have capacity shares of approximately 40, 35, and 20 percent, respectively. All of the DOJ's concerns may mean a tough fight for regulatory approval in the US.

If this deal is to go ahead, it will see the 2M alliance, a vessel sharing agreement (VSA) between Maersk and the Mediterranean Shipping Company, increase its hold as the largest container shipping alliance with a global market share of over 30%. Earlier in the year, HMM looked set to fulfil its commitments to its creditors which required the Korean firm to successfully join a global shipping alliance. HMM is currently the 13th largest container freight firm in terms of capacity, with a 2.2% market share. Talks are apparently still ongoing between the 2M parties and HMM, but only time will tell what, if anything, will happen between Maersk, MSC, and HMM, which would also face regulatory approvals.