Monday, September 5, 2016

Freight Carriers Merge as Pressure Mounts on Logistics Groups After Container Shipping Line Collapse

Consolidation Designed to Produce Efficiency
Shipping News Feature
NORWAY – SWEDEN – US – Following last week’s collapse of major container line Hanjin, two of the oldest merchant shipping groups, Norwegian maritime group Wilhelmsen and Swedish shipping line Wallenius, have taken their already close relationship to the next level and announced plans to merge the two companies to establish a new ownership structure for already jointly owned investments. Wallenius is comparative newcomer to the freight trade having been founded in 1934, some 70 or so years after its partner. The new entity, Wallenius Wilhelmsen Logistics ASA, is designed to consolidate the partnership, which dates back to 1999, forming a more efficient management structure and enabling further synergies between various joint ventures.

The intention is to merge the parties' ownership in the jointly owned entities Wallenius Wilhelmsen Logistics (jointly owned 100%) and EUKOR Car Carriers (jointly owned 80%), plus American Roll-on Roll-off Carrier (ARC) (jointly owned 100%). Both of the first named have been hit recently by spectacular multi-million dollar fines in the US, China and South Africa totalling over $150 million for antitrust activities. In addition, the parties will merge the ownership of the majority of their vessels and affected assets and liabilities. Wallenius Wilhelmsen Logistics ASA will be based on the existing listing of Wilh. Wilhelmsen ASA and continue to be listed on the Oslo Stock Exchange.

When the transaction is completed, Wilh. Wilhelmsen Holding ASA and Wallenius Lines AB will have equal ownership in the new entity, and plan to own approximately 40% each. The precise terms and ownership level will be confirmed with the announcement of the final agreement before year-end. Jan Eyvin Wang, President and CEO of Wilh. Wilhelmsen ASA, said:

“The markets in which the jointly owned entities operate are going through rapid change and require a more agile and efficient business model. In addition to establishing a common owner and governance structure, the proposed merger is expected to enable synergies between $50-100 million by combining the assets and harvesting economies of scale, including more optimal tonnage planning, and administrative, commercial and operational efficiencies between the entities,”

Craig Jasienski, currently CEO and President of EUKOR Car Carriers, will be appointed CEO for the new entity, to be based at the Wallenius Wilhelmsen Logistics ASA head office in Norway. To facilitate the transition process and in order to realise operational and commercial synergies, Jasienski takes on immediately a joint CEO role for Wallenius Wilhelmsen Logistics and EUKOR Car Carriers.

Based on expected growth opportunities within the logistics segments, Christopher J. Connor, President and CEO of Wallenius Wilhelmsen Logistics since 2013, will lead a strategic review, targeting accelerated growth of the land-based logistics business. The parties say they will negotiate in good faith and expect to sign legal agreements and obtain relevant approvals before the end of the year with the proposed transaction expected to close Q1 of 2017. According to a joint statement by Thomas Wilhelmsen, Chair of Wilh. Wilhelmsen ASA, and Diderik Schnitler, Chair of Wilh. Wilhelmsen Holding ASA, the reasoning behind the proposed changes relates to the ‘changing market dynamics and pressure on margins’ which forced a change in how the company manages its joint ventures.

Pressures on the freight carriers are building as the paucity of cargo compared with the available space continues to keep rates low. The news comes after last week’s confirmation that the world’s seventh largest container freight firm, Hanjin Shipping, had filed for court protection, with the immediate probability that the stricken company assets would be merged into national rival carrier Hyundai Merchant Marine.

Hanjin vessels were prevented from calling at some US ports, even at Total Terminals International (TTL), the pier in the Port of Long Beach in which the shipping line owns a majority stake. Speaking to the Handy Shipping Guide, Kasra Ferasat, marketing director at American Export Lines (AEL) the Los Angeles based multimodal logistics and forwarding group, told how AEL has been told all operations had ceased and all bookings cancelled. At TTL, which handles a third of all Long Beach cargo, no Hanjin containers, loaded or empty, are now allowed through the gate. Mr Ferasat said:

“We have a great relationship with them and it’s definitely going to be a problem for us, for the whole industry. It’s really affecting us for sure, we had probably about 10, 15 containers around the country that were either loaded with goods for export or they were on their way to get loaded. We have shipments on the water, too. We’re worried and don’t know what’s going to happen when they hit the ports because we don’t know if they’re going to accept the Hanjin containers.”