China and the EU's conditions for approving Maersk Line's acquisition of Hamburg Süd has made life more difficult for Maersk, which is looking to achieve an annual financial gain from the large-scale purchase of between USD 300-400 million from 2019 and on, says former Head of Maersk in Latin America, Michael Kaasner Kristiansen.
After spending 24 years with the Maersk Group, most recently as Managing Director of Maersk Line in Latin America, he now consults shipping and logistics firms, ports and authorities in Latin America from his base in Panama.
Maersk Line and Hamburg Süd will provide a very strong product, but the acquisition is somewhat weakened by the requirements set forth by the EU and China"
"The biggest synergies will be achieved through joint sailing arrangements and the route network. And even though Maersk Line and Hamburg Süd are major players in South America and can operate on their own in most places, the conditions required by the EU Commission and China make life difficult for Maersk Line in terms of achieving these synergies," Kristiansen tells ShippingWatch.
In particular, he describes the EU Commission requirement that Hamburg Süd must withdraw from consortia that, among other routes, link the South American west coast to Europa, as tough. Especially because Maersk Line and Hamburg Sud's market shares are still somewhat behind those of competitor MSC.
Meanwhile, China has, as a condition for its approval of the Maersk acquisition, issued requirements for the merger on the routes between Asia and the South American east coast, from where a majority of Brazil's billion-dollar food exports are shipped.
The German container carrier, which has Latin America as its core business, must, as a condition for the EU approval issued from Brussels in April this year, withdraw from vessel sharing agreements (VSA) in four consortia to and from Latin America.
The Brussels conditions have been described as perhaps the most severe yet issued by the EU competition regulators in relation to a merger of two container carriers.
The Chinese Ministry of Commerce a few weeks ago, on Nov. 7, cleared Maersk Line's German acquisition – but on a series of conditions.
Source: Alphaliner/Market shares on Asia-South American East Coast
These include requirements that Hamburg Süd must withdraw from a VSA with, among others, China's Cosco, Hapag-Lloyd and several other container carriers between Asia and the South American east coast.
Maersk is also barred from extending Hamburg Süd's participation in a similar arrangement on routes between Asia and the South American west coast.
Meanwhile, the Danish carrier is barred from participating in VSAs or alliance arrangements with competitors such as France's CMA CGM, Hapag-Lloyd, MSC and Japanese NYK on services between Asia and South America's east and west coasts for five years after the Hamburg Süd acquisition comes into force.
Source: Alphaliner/Market shares on Asia-South American West Coast
Finally, the Chinese Ministry of Commerce says that Maersk Line must reduce its combined share of so-called reefer slot capacity between Asia and South America's west coast from 45-50 percent today to 34-39 percent by no later than 90 days after the purchase of Hamburg Süd is completed.
Together with Hamburg Süd, Maersk Line has a combined market share of 43 percent on the container routes between Asia and the South American west coast, and the carrier can thus stand on its own here. But the two carriers' market share is considerably smaller, 26 percent, on routes from Asia to and from South America's east coast, and Kristiansen notes that it would be obvious for the carrier to work with a partner here.
"These are two strong companies joining forces. Maersk Line and Hamburg Süd will provide a very strong product, but the acquisition is somewhat weakened by the requirements set forth by the EU and China," he says.
The route network, optimal utilization of employees at the two organizations and a joint future IT platform are, according to Kristiansen, the by-far the three biggest challenges facing Maersk in relation to the takeover of Hamburg Süd.
"It's a huge challenge when reducing two organizations set to be merged."
What about Sealand?
According to Kristiansen, Maersk also faces a completely different challenge in terms of completing the acquisition.
I find it hard to see how one logically divides the business between Maersk Line, Hamburg Süd and Sealand"
Back in 2014 and 2015, Maersk reorganized its intra-American brand and carrier, Sealand, headquartered in Florida.
"I find it hard to see how one logically divides the business between Maersk Line, Hamburg Süd and Sealand. Sealand is the intra-American brand, but Hamburg Süd and its brand Alianca in Brazil also has a good part of its business in the intra-American market," he says:
"Of course its possible to cover certain markets with two brands, but the question is whether this is the best financial way to do it. This should be an obvious target for rationalization."
Maersk Line decided in early 2014, and starting on Jan. 1 2015, to establish a new and independent inter-regional carrier to service the American continent, just as Maersk's carriers Seago Line and MCC cover Europe and Asia, respectively.
Sealand marked the resurrection of the name of the major US-based container carrier which Maersk Line acquired back in 1999, which operated routes in the US and Latin America.
With the resurrection of Sealand, Maersk Line transferred business to the intra-American carrier, which from day one focused on customers who ship less than 500 containers annually.
"I would probably pick one single brand for the American markets, and then see if there's a way to combined the best parts of Sealand and Hamburg Süd. Hamburg Süd has a large, skilled and very experienced organization in Latin America," says Kristiansen.
Fight for market shares
Maersk announced the deal with Oetker Group back in December 2016 to acquire container carrier Hamburg Südamerikanische Dampfschiffahrts-Gesellschaft KG (Hamburg Süd) for USD 4.3 billion. The German container carrier has South America as its core business, with a focus on transporting fruit and meats in reefer containers from Brazil in particular, one of the world's top food exporters, and the South American east coast.
Maersk Line's acquisition of Hamburg Süd intensifies carrier concentration in Brazil significantly, as the two carriers together are projected to have a market share of 36 percent of all contain transport in and out of the country.
Three groups of carriers will control container transports to and from Brazil, and in the reefer market Maersk Line and Hamburg Süd will likely get a market share of 40 percent.
New ships are expected to be deployed in the months to come in the carrier's fight for market shares in the wake of Maersk Line's Hamburg Süd takeover.
According to Alphaliner, Maersk Line's competitors are expected to expand their presence on the routes between the Far East and South America's east and west coasts, after freight volumes and rates are now on the rebound after a two-year decline.
English Edit: Daniel Logan Berg-Munch