CSAV and Hapag-Lloyd in merger discussions
By on Dec 13, 2013
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After facing bankruptcy in 2011, and continuing to struggle like many other container shipping lines, could a potential merger with Hapag-Lloyd turn CSAV's fortunes around?
Ocean container shipping lines have seen their ups and downs over the years. However many have struggled since the 2009 global recession as a glut in capacity, pressure on rates and slow growth in world trade continues to plague the industry.
German-based Hapag-Lloyd and Chilean-based Compania Sud Americana de Vapores S.A. (CSAV) have certainly had their problems, both negatively affected as a result of the 2009 economic downturn and since then have struggled much like many other container shipping lines. In fact, Hapag-Lloyd has been in merger negotiations with Hamburg Sud earlier this year and with Neptune Orient in 2008. Now, the company is in discussions with CSAV.
After flirting with possible bankruptcy in 2011, CSAV changed its focus and restructured operations. Now, the company focuses on emerging markets including its home region South America. In fact, 65% of its throughput touches the Latin American region.
Financially, CSAV is still struggling. In its latest quarterly earnings report for the period ending September 2013, the company reported a net loss of $46.7m compared with a profit of $55.8m for the same period in 2012. CSAV said the loss was due to a decline in freight rates, which also led to a 6.3% year-on-year drop in operating revenue to USD 832.5m.
However, on a more positive note, CSAV volumes shipped during the period increased by 0.8% to 493,500 TEUs, while the company also reduced its debts by $277.4m to $339.2m.
Will discussions among these two companies prove fruitful? It is doubtful according to industry commentators. According to Alphaliner, “The likelihood that the discussions will lead to a merger is low. CSAV and Hapag-Lloyd have disparate shareholders with no clear consensus on the future strategic direction for both companies, making a merger deal difficult to forge.”
Instead of mergers, container shipping lines seem more interested in forming alliances, similar to those in the airline industry in which members share space. For example, Hapag-Lloyd belongs to the G6 alliance which also includes APL, OOCL, MOL, Hyundai Merchant Marine and NYK.
If, however, discussions prove successful, according to Alphaliner, Hapag-Lloyd which is currently the world’s sixth-largest container ship fleet and CSAV which is ranked 20th, the combined company would become the world’s sixth-largest container ship fleet.
The industry will likely continue to struggle with declining rates and overcapacity until the ocean container liners decide to change their strategy. Perhaps a wave of mergers and acquisition may get set to occur in particular as the latest alliance, the P3 appears to be raising regulatory eyebrows. Comprised of the three largest carriers, Maersk, MSC and CMA CGM, there are concerns that this alliance would control up to 40% market share on some trade routes. As a result, the US Federal Maritime Commission has put its decision concern
ing the alliance on hold has it waits to meet with the EU and China later this month.