Report indicates CMA-CGM proposes a merger with Hapag-Lloyd – Supply Chain 24/7

A Reuters report published this week indicated there may be further consolidation on the high seas, with Marseilles, France-based CMA CGM, the third largest global ocean cargo carrier, having made an “exploratory approach” regarding potentially merging with Hamburg, Germany-based Hapag-Lloyd.

The Reuters report, which cited three finance sources, said that this pairing would be in the form of a non-cash merger.

This deal comes at a time when the ocean cargo sector continues to be impacted by overcapacity and rate pressures, struggling financials, and operating expense management, among other factors.  And, as the report observed, the sector is dealing with an “almost decade-long slump,” which has resulted in some carriers leaving the industry and other carriers forming alliances to see gains in economies of scale. On top of that, the onset of the U.S.-China trade war is increasing cost pressures, with the possibility that trade-route demand could become more unpredictable, Reuters added.

While this potential merger is speculative, the report said that key Hapag shareholders have rejected it, and a company spokesperson said it is a rumor lacking substance. 

And Hapag-Lloyd CEO Rolf Habben Jansen said in a separate Reuters report issued today that his company does not  “see major takeovers in the industry. If at all, there are smaller tie-ups by niche players in the short term.”

What’s more, a recent Shipping Watch report noted that Hapag-Lloyd plans to eliminate a series of jobs at its headquarters in Hamburg as part of a new efficiency plan aimed at reducing costs, which will impact around 160 employees, with the cuts coming in layoffs and the outsourcing of various functions to other companies.

Ocean carrier consolidation has been a frequent theme, especially in recent years.

In July 2016, Hapag-Lloyd and United Arab Shipping Company agreed to merge. Other notable ocean sector mergers and acquisitions include: CMA CGM acquiring APL; CSCL integrating with COSCO, the acquisition of Hamburg Su¨d by Maersk and the merger of K Line, MOL and NYK’s liner shipping businesses.  

There have also been various ocean carrier alliances rolled out during this time, too, including: the Ocean Alliance comprised of COSCO Shipping, CMA CGM, Evergreen Marine, and Orient Overseas Container Line Limited (OOCL); the 2M Alliance of Maersk and MSC; K Line, Mitsui O.S.K. Lines Ltd., and Nippon Yusen Kabushiki Kaisha establishing a new joint-venture company to integrate the container shipping businesses (including worldwide terminal operating businesses excluding Japan) of all three companies and to sign a business integration contract and a shareholders agreement in October 2016; and the June 2017 formation of three Japan-based container shipping carriers, Kawasaki Kisen Kaisha, Ltd. (K-Line), Mitsui O.S.K. Lines, Ltd. (MOL), and Nippon Yusen Kabushiki Kaisha (NYK) entitled Ocean Network Express (ONE).

Chris Rogers, research director for global trade intelligence firm Panjiva, said that he agrees that the need to consolidate to become more profitable, but adding that comes with a caveat.

“The industry needs fewer boats in the water rather than just fewer managers on the short,” he explained. “To my mind it would make more sense for CMA CGM to consolidate within Ocean Alliance where there is a good geographic fit rather than teaming up with another Europe/Transatlantic specialist. Similarly for Hapag-Lloyd a tie up with ONE would make more strategic sense than CMA CGM. Finally it’s worth noting Hapag-Lloyd (and CMA CGM) has a shareholder structure that precludes hostile deals so whatever happens will need to work for all concerned.”

Ben Hackett, founder of maritime consultancy Hackett Associates, noted that in theory a CMA CGM and Hapag-Lloyd merger would make sense, but the make up of shareholders would make it extremely difficult.