Tuesday, January 23, 2024

Shake Up and Fall out

 The announcement on January 17, 2024 that Maersk A/S and Hapag-Lloyd AG have formed a 60/40 joint venture called Gemini Cooperation is the latest move to shake up the global container shipping business. The new entity, which will employ 290 ships with a capacity of 3.4 million TEU, will take effect in January 2025. It will operate a total of 26 main line services and more than 30 shuttle or feeder services world-wide. It is to be noted that this is not a corporate merger or acquistion (which would doubtless cause regulatory opposition), but a long term (others say four year) contract with performance terms for each partner. (Many mergers started with joint ventures however, so never say never). Reliability and environmental sustainability are two stated goals for the venture. [Container shipping companies have poor records for maintaining schedules, with a world-wide average of under 65% and an average 4.9 days late. For October 2023 Maersk was the most reliable at 71.1%, MSC was 68.5% and Hapag-Lloyd was well down the list sharing sixth place with COSCO at 60% on time.]

The effect of this development may be widespread as Hapag-Lloyd in particular will be making major adjustments. These will include changing principal ports (it will leave Hamburg in favour of Wilhelmshaven, Bremerhaven and Rotterdam as feeder hubs, even though the Port of Hamburg is a major stakeholder in the company.) The hub and spoke arrangement may favour larger and more central ports if they can overcome congestion issues.

More dramatic for Halifax, Hapag-Lloyd will also exit THE Alliance which leaves the other partners (ONE, Yang Ming and HMM) as Asia-only operators. Whether they will be able to find a new partner with European roots is questionable. Some analysts fear THE Alliance may not survive. Although H-L does not contribute ships to the services calling Halifax, its orange containers are prolific throughout the port, and the majority arrive on THE Alliance ships. 

Hapag-Lloyd has been an important customer in Halifax since the earliest days of containerization and before (although some if its business has been drained off recently to Saint John and CP Rail). Currently THE Alliance has two routes calling in Halifax, AL5 and EC5. Hapag-Lloyd has a slot charter deal with ZIM's ZCA transatlantic service and another with ACL, neither of which may be effected. 

 ZIM carries a lot of orange and green on deck.

Hapag-Lloyd also operates the weekly North Europe service "Montreal Express"from Antwerp, Liverpool, Le Havre and Bremerhaven to Montreal in conjunction with MSC and OOCL. Those ships normally do not call in Halifax.

Maersk announced a year ago that they would be leaving the 2M Alliance with MSC at the end of January 2025. Where that leaves MSC remains to be seen.

Maersk itself is a fairly minor player in Halifax, represented by their joint St-Lawrence River service with CMA CGM and possibly some M2 cargo on MSC ships. Nevertheless changing patterns may emerge when Hapag's THE Alliance cargo shifts to Gemini or to other carriers.

On paper,at least for now, Gemini will become the largest shipping line after Ocean Alliance (CMA CGM, Evergreen COSCO/OOCL) which carries about 28% of the world's container trade. Gemini will have about 23% (Maersk 15% and H-L 7%) while MSC has about 20%.

As a matter of record AP Moller-Maersk owns Maersk A/S. In turn, A.P.Moller-Maersk is majority owned by the Moller family and its investment foundation (53.78% by most accounts) with numerous shareholders and investment funds each with less than 10% holding. Hapag-Lloyd is owned 30% by Klaus-Michael Kuhne, 30% by Cia Sudamericana de Vapores (CSAV), 13.9% by the City of Hamburg, 12.3% by Qatar Holdings and a number of shareholders and investment funds, none exceeding 10%.

It is expected that other lines, outside of the current alliances, may pick up some of Hapag-Loyd's Halifax business. The most likely to do so are MSC and CMA CGM. both of which serve Halifax now.

No dramatic changes are expected soon. Since the Gemini arrangement does not take effect until a year from now, a more gradual process is expected. However mega mergers and combines in other industries (most notoriously railroads) have not been altogether smooth. Some short term pain is expected.

An entirely superficial analysis of the deck load on THE Alliance's recent callers indicates a significant proportion of Hapag-Lloyd and UASC boxes. (Hapag-Lloyd and the United Arab Shipping Company merged in 2017.) Some "heritage" boxes from previous acquisitions such as Nile Dutch (2021) can be spotted too.

Who will carry those boxes, or their contents, may have a significant impact on the number and size of ships calling in Halifax over the next year or more. Stay tuned.


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