Hapag-Lloyd helmsman charts a new course in Asia
Under new chief executive, German container line Hapag-Lloyd mulls investment in China's logistics industry to shore up its Asian exposure
Rolf Habben Jansen has taken the helm at Hapag-Lloyd at a time of transformation in the shipping industry, ensuring plenty of challenges for the Dutch national.
He is convincing the board to invest in China's logistics industry - a step rarely seen among Western shipping lines - as part of the solution to the German company's underexposure to Asia. "We are discussing internally whether or not to make such investment as we speak. I am leaning towards a 'yes'," Jansen told the in his first media interview since taking over as chief executive in July.
Hapag-Lloyd holds a 3 to 4 per cent market share in the export of containerised goods out of China.
"In China, traditionally goods are exported from coastal cities or close to coastal cities. With the manufacturing base moving inland and to the west, the requirement for inland transportation is changing," said Jansen, 48, who before joining Hapag-Lloyd was the chief executive of Damco, the logistics arm of the AP Moller-Maersk Group. "This is a potential opportunity for us to leverage given our experience [in land transport in Europe and the US]."
Trucking, rail, and barging are all possible options on the table, he added. As with the European Union and the United States, China has restrictions on foreign companies providing inland waterway transport. If Hapag-Lloyd were to enter the market, it needs to find a homegrown partner with a controlling stake.
"From a Chinese company point of view, it still could be interesting to team up with someone like us who can bring in expertise. It also allows us a better access to a door-to-door service product. If you compare us with many other carriers, we are a much more door-to-door carrier than those who typically have a higher share of port-to-port business," Jansen said.
But before making any forays into unknown territory, Jansen has more immediate tasks to contend with as the 165-year-old company enters a new chapter.
Hapag-Lloyd is on the verge of completing its merger with Compañía Sud Americana de Vapores (CSAV), a Chilean carrier. The deal will elevate Hapag-Lloyd's fleet size from the world's sixth-largest to fourth, after Maersk Line, Mediterranean Shipping Company and CMA CGM, which could have formed the P3 network had Beijing not rejected the plan in June.
"The priorities for me in the next 12 to 24 months are: integrating CSAV, demonstrating better earnings, and seeking an IPO on the German stock market. This is the only logical sequence," said Jansen, the first non-German chief at Hapag-Lloyd, which is 37 per cent owned by the City of Hamburg.
The merger is the first in seven years in the global container shipping landscape, where most players are awash in red ink due to a glut of vessel supply and slackening trade growth.
In April, Hapag-Lloyd and CSAV reached a deal that will see the Chilean carrier merged into the Hamburg-based company. In return, CSAV will become the largest shareholder of Hapag-Lloyd, with a 34 per cent stake after a €259 million (HK$2.5 billion) capital injection scheduled at the closure of the deal at year-end.
CSAV, with its strong suit in north-south trades, will bring Hapag-Lloyd the access it has long desired to the South American market, if regulatory clearance is obtained.
The EU and the United States have approved the transaction, with the green light pending in a handful of other countries including China.
The combined company, with €9 billion in annual turnover, will have the largest market share in Latin America-North America trade lanes (20 per cent), and the second-largest in Asia-Latin America routes (12 per cent).
Hapag-Lloyd has not turned a net profit for 3-1/2 years, during which time it recorded a total of €428 million in net losses.
"We are taking big steps now [with the merger], but first we need to demonstrate we can make that work and make money," said Jansen.
The company enjoys a B-plus rating with a stable outlook by Standard & Poor's, which holds a positive view of the CSAV merger.
"Hapag-Lloyd has a good track record in prudent management and in achieving its cost-saving targets. The company has experiences learned from the successful integration of CP Ships [acquired] in 2005, and over-achieved its cost-saving targets between 2009 and 2010," said Standard & Poor's credit analyst Izabela Listowska.
Hapag-Lloyd estimates the synergy with CSAV would result in US$300 million in cost savings via measures such as network optimisation, better bargaining power in bunker fuel procurement, and reductions in overheads.
Listowska said: "The actual full benefit will be seen from 2017 onwards, given that it needs 12 to 24 months to complete the integration and absorb the related one-off costs."
Hapag-Lloyd, a member of the G6 alliance, plans to raise €370 million in the IPO and will likely invest the proceeds in new vessels that can carry 18,000 20-foot containers or more. Other members of G6 are Orient Overseas Container Line, Singapore's APL, South Korea's Hyundai Merchant Marine, and NYK Line and Mitsui OSK Line of Japan.
"Alliances can help stabilise the market, bringing better discipline of supply capacity in the industry. This whole freight rate volatility [in the past few years] makes no sense.
"I expect more stability in the industry within the next 24 months," Jansen said.
