Even though Hapag-Lloyd CEO Rolf Habben Jansen has not read through McKinsey's report criticizing investments in the container sector, he partially agrees with the conclusion presented recently.
Earlier this week, international consultant firm McKinsey concluded that investors which have placed their capital in container carriers in the past two decades have in general lost so much money that investments in the sector can only be described as unusually bad business. Specifically, this came to a total of USD 100 billion in lost values, because of poor decisions and wrong strategies.
Habben Jansen, known as a pragmatic leader, does not agree to such an extent, but between the lines he seems to acknowledge that the money could perhaps been put to better use elsewhere.
Those sailing the biggest vessels are not reporting amazing results"
"You could probably say that it's not a tremendous amount of assets that has been created," he tells ShippingWatch Wednesday night following a panel debate at the carrier's headquarters in Hamburg.
At the event, the CEO discussed the possibilities and challenges ahead of the sector, and he noted that the situation going forwards looks somewhat different and more promising than when looking back on the sector, which has changed significantly especially in the last couple of years.
And if you, like him, believe in the fairly positive prospects that are emerging, it would not be a bad idea to buy assets in the container industry now, he said.
Habben Jansen says that any comparison to the massive overcapacity that was crippling the market just few years back, of up to 20-30 percent, is by now over and done with.
Several factors currently point to a healthy market, which container carriers have not seen in a long time. An idle fleet of just one percent. A low order book for the next 18 months, even though several of the carriers competitors have recently placed numerous orders, most recently Evergreen. The supply of new vessels and a surge in demand approaching equilibrium. Scrapping remains high, at around 3 percent. All these factors indicate that the market, according to the CEO, is doing well, perhaps except for the escalating bunker price.
He is on the team that believes consolidation among the major container carriers has peaked for now, and one of the other participants in the panel, OECD Shipping Expert Olaf Merk, agreed. It does not make financial sense to continue consolidating right now, and the current competition should please shippers as well as regulators, he said.
"Some have said that the crisis will continue, just as the consolidation, but none of that is right."
Unlike the critics of Hapag-Lloyd's lack of mega-vessels of more than 20,000, the CEO is one of the most vocal critics of the trend toward bigger and bigger vessels. He says that the results being published confirm his view on the matter.
I've long been saying that we've reached a size where it no longer makes financial sense to get bigger"
Costs per shipped container may well be smaller on the biggest ships, but that the total costs, all included, make the biggest ship more expensive, as the ultra-large vessels lack flexibility, for instance in terms of the feeder network.
"We've seen a race toward bigger and bigger ships. I've long been saying that we've reached a size where it no longer makes financial sense to get bigger. Those sailing the biggest vessels are not reporting amazing results. We've maintained that we needed access to bigger ships, but we've also always said that they shouldn't account for a large part of our portfolio, we're in a fine position for Asia-Europe as it is today," he said, outlining what it takes for the biggest ships to also earn the most money:
"They need to be at sea. The ships need to be filled to capacity, and the bunker price must be fairly high."
When he switched from Damco to the German container carrier three and a half years ago, the industry had only just taken baby steps into the consolidation that unfolded big-time last year, including Maersk Line's acquisition of Hamburg Süd.
In a few years, 9 of the 20 biggest carriers disappeared, at least as independent carriers, as Hamburg Süd will continue with its existing setup but with new owners.
The next consolidation could come in the form of closer cooperation between the container carriers and the ports, he projected, as did CEO Angela Titzrath of the Port of Hamburg, which already works with Hapag-Lloyd. "Terminal partnering," they call it, aimed at the common goal between the ports and the carriers of making the former more efficient.
He does not predict de facto mergers, nor that competitor Maersk Line and APM Terminals should be merged, as "APMT needs more than just Maersk Line's volumes."
As CEO of a listed carrier, he is unable to comment on whether the positive developments he cites are similarly reflected in Hapag-Lloyd's annual report for 2017, which will be published on Feb. 28.
English Edit: Daniel Logan Berg-Munch