Hapag-Lloyd's Strategy Pays Off
| | Hapag-Lloyd, the world’s sixth-largest container carrier, is set to move from financial intensive care into operational convalescence. According to Hapag-Lloyd insiders, the shipping line moved out of the red toward the end of 2009 on the back of rising cargo volume and firming freight rates
— especially in its key Asia-Europe trades — that signal container shipping is emerging from its deepest-ever recession.
The
German carrier will again be a drag on TUI, its largest shareholder,
when the tourism giant on Feb. 15 publishes its results for the final
quarter of 2009. Hapag-Lloyd’s $1 billion-plus full-year loss —
following a $985 million deficit in the first nine months of 2009 —
will be the big news. But more important will be confirmation the
carrier was breaking even at the operational level in the final weeks
of the year.
Hapag-Lloyd isn’t about to start making serious money
again or paying a dividend to its shareholders. But there are signs the
carrier is better placed than many of its rivals to take advantage of
the container shipping recovery.
Hapag-Lloyd’s shareholders — TUI,
which holds 43.3 percent, and the Hamburg-based Albert Ballin
consortium, with a 56.7 percent share — are finally seeing results from
their $2.7 billion capital injection; the carrier has become a leaner
and fitter company.
Hapag-Lloyd has trimmed its headcount, reduced
its payroll, frozen recruitment, streamlined its regional offices and
restructured liner services as part of a plan to cut $1 billion in
costs annually. It also has cajoled shipowners, many of them German, to
reduce ship charter rates — a major cost item because 58 of its 117
vessels are hired, accounting for more than 45 percent of its total
fleet capacity.
And unlike many of its rivals, Hapag-Lloyd isn’t
weighed down by a huge order book of giant ships. It has just 11
vessels — with combined capacity of 96,250 TEUs — on order, equal to
19.6 percent of its current capacity, according to AXS-Alphaliner, the
Paris-based shipping analyst and consultant.
France’s financially
troubled CMA CGM, by contrast, has an orderbook equivalent to 47.5
percent of its current capacity and is spending valuable management
time struggling to cancel a third of its contracts with South Korean
shipyards.
Hapag-Lloyd’s lean orderbook ensures it won’t be burdened
by surplus capacity if global container trade increases only modestly
over the next couple of years. And if traffic rises more sharply than
forecast, the carrier can easily charter additional capacity at
favorable rates.
The carrier appeared to be facing fresh financial
problems in late January with reports European Union competition
regulators are challenging $1.7 billion in loan guarantees provided
late last year by the German government and the city-state of Hamburg.
The reports, however, aren’t likely to have caused much concern at
Hapag-Lloyd because the carrier only expected to tap the funds in a
dire emergency.
The more relaxed and optimistic stance of
Klaus-Michael Kuehne, the billionaire majority owner of Swiss global
logistics giant Kuehne + Nagel and second-largest shareholder in the
Albert Ballin consortium, offers further evidence that Hapag-Lloyd has
turned the corner.
Kuehne called on TUI in mid-January to sell its
Hapag-Lloyd stake to make room for new investors and a more stable mix
of shareholders. Kuehne is “bothered” by the current group of
shareholders — spanning tourism, insurance, banking and public
authorities — because their interests are too different.
In a vote
of confidence in the carrier, Kuehne said he wants to increase his
stake if new investors come on board. Kuehne hasn’t always seen
eye-to-eye with his fellow shareholders, but in the absence of comments
from TUI and the Albert Ballin consortium, his public statements — and
his knowledge of the global transport business — are a handy guide to
the company’s state of health.
TUI wants to cut free from
Hapag-Lloyd to focus on its core tourism business, but that won’t
happen any time soon. In fact, TUI has the right to convert $500
million of a $1 billion hybrid capital injection in October into
Hapag-Lloyd stock from 2011, which would lift its shareholding to 49.9
percent.
For now, Hapag-Lloyd itself is focused on returning to the
black and preparing for the looming consolidation of a container
shipping business that remains fragmented despite several major mergers.
With
a paltry 3.6 percent world market share, even a profitable Hapag-Lloyd
will struggle to survive, and is seen as an eager participant when
merger activity revives.
Source: Journal of Commerce |
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