Additional slides / backups to be added (esp. for BPK): 1. German flag (>40 vessels, HL commitment, new ships) 2. Environmental topics ( Landstrom / certified scrapping) 3. Elbe dredging (European Court of Justice etc) 4. Employee information (7.001 10.949, 4th region) Navigating a Future for Container Shipping Assessing the Impact of Consolidation and the Way Forward for the Industry Anthony Firmin, 21 st April 2015, Hamburg Investor Presentation Annual Report 20 1 27 March 2015
Agenda A. Consolidation in the Liner Shipping Industry B. The Way forward for the Industry C. Conclusion 2
The market share of the top players in our industry has grown steadily but actual consolidation has remained slow Total Market Share of the Top 10 / Top 20 Companies Share of Top 10 83% Share of Top 20 71% 63% 66% 53% 52% 44% 46% 39% 29% 1995 2000 2005 2010 20 3 Source: MDS Transmodal
The industry remains highly competitive in an exceptionally volatile market and further Consolidation is needed... Shanghai Europe (SCFI) Rates East West Trades 2007-20 2.500 2.000 1.500 1.000 NEurope (USD/TEU) 1.700 1.600 1.666 1.633 Weighted average (incl. THC s and Intermodal) 500 0 284 1.500 2.500 2.000 1.500 Jan Apr Jul Oct Jan Apr Jul Oct Jan 15 Shanghai Latin America (SCFI) South America (USD/TEU) Apr 15 1.400 1.300 1.200 1.345-37% -30% 1.281 1.000 1.100 1.6 500 0 389 1.000 1.049 USD/TEU Jan Apr Jul Oct Jan Apr Jul Oct Jan 15 Apr 15 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q 1Q 4Q 4 Source: Shanghai Shipping Exchange (08 June 2015) Source: Drewry, 1Q15
but M&A activity over the last 19 Years has been limited to a few major deals two by Hapag-Lloyd in 2005 & 20 No major relevant M&A Mergers Deals between 2007 and 20 20 Year Acquisitor Target 1996 P&O Nedlloyd 1996 CMA CGM 1997 Hanjin DSR Senator 1997 NOL APL 1998 Evergreen Lloyd Triestino 1998 Hamburg Süd Alianca 1999 Maersk Safmarine 1999 Hamburg Süd Transroll Nav.S.A. 1999 Maersk Sea-Land 2000 CSAV Norasia 2002 Hamburg Süd Ellerman 2003 Hamburg Süd Kien Hung Shipping Co. 2005 Maersk Royal PONL 2005 CMA CGM Bollore (Delmas) 2005 Hapag-Lloyd CP Ships 2007 Hamburg Süd Costa Container Lines Year Acquisitor Target 20 Hapag-Lloyd CSAV 20 Hamburg Süd CCNI 2015 CMA CGM OPDR Reasons for low M&A Activity Ownership Structure Value Misconception Cultural Challenges Post Merger Integration Risks 5
Alliances are the best available alternative, given the reluctance to cede control Top 20 Fleet [m TEU] & Alliance Maersk 2.8 MSC 2.5 CMA CGM 1.7 Hapag-Lloyd 1.0 Evergreen 0.9 COSCO 0.9 CSCL 0.7 Hanjin 0.6 MOL 0.6 Hamburg Süd 0.6 APL 0.5 OOCL 0.5 NYK 0.5 Yang Ming 0.5 K-Line 0.4 UASC 0.4 Hyundai 0.4 PIL 0.4 ZIM 0.3 Wan Hai 0.2 Alliance members share assets, but remain competitors (vessels are shared but sales, pricing and marketing stay independent) Benefits of Alliances: Select the most economical vessels for each trade lane Reduce investment otherwise required to run a service Expand the product to offer more flexibility to the customers. Four key Alliances in liner shipping leave only four small carriers without partnership The members do not necessarily put all of their portfolio into the Alliance Non-alliance carriers Ocean Three CKHYE G6 2M 6 Source: MDS Transmodal, April 2015 plus HL internal data, only vessels >399 TEU, Alphaliner
The Merger of Hapag-Lloyd and CSAV was an exception! Container Shipping Turnover 20 ~6,5 bn EUR New Hapag-Lloyd 8.5 bn EUR ~2.0 bn EUR Transport Vol. 20 5.5 Mio. TEU 7.4 Mio. TEU 1.9 Mio. TEU Vessels 7 (760 TTEU) 191 (1 Mio. TEU) 44 (238 TTEU) Average Fleet Age 8.7 years 7.8 years 8.6 5.0 years Staff ~7,000 ~11,000 ~4,000 Container Fleet ~1,2 Mio. TEU ~1,7 Mio. TEU ~500,000 TEU Founded 1847 >300 Years Experience 1872 7
Operational: 300 Mio. USD Net Synergies and better Products Synergies of approx. USD 300 m p.a. Optimized and enlarged network Worldwide: 119 services Europe Asia/Oceania: services ~300 Europe North America: 21 services Africa/Med: services Latin America: 28 services Intra Asia: 19 services Asia/Oceania North America: 25 services Convincing Synergies Niche Services Complementary Market Shares Network Overhead Other Gross synergies Volume loss risk Net synergies Balanced Global Presence 8 Source: Company information
and a strong deal rationale Deal Rationale Strategic Rationale New Hapag-Lloyd catches up to top 3 players Selective market leadership and economies of scale Creation of a global platform as a base for further consolidation Strategic fit due to complementary trade routes Operational Rationale Value enhancement via synergies of approx. USD 300 Mio. p.a. Reduction of costs per slot due to larger and younger fleet Optimized and enlarged network Reduction of procurement costs and imbalances Financial Rationale Gaining an additional strong anchor shareholder Enhancing equity base and liquidity reserve Rating improvement due to optimized capital structure 9
Agenda A. Consolidation in the Liner Shipping Industry B. The Way forward for the Industry C. Conclusion 10
The Question is What is the Way forward for our Industry if Consolidation is not a realistic Option? 11
Alliances are the only alternative Standalone VSA Conventional Alliance Value added Alliance Integrated Alliance Merger Description / Structure Fully independent operations Share vessel capacity on one or more services + Share capacity and coordinate in all/part of ocean network + Land-side coordination + Joint ops (land & sea) on joint systems + Full/partial integration of companies Benefits Full control No sharing of scale, other benefits Less capex Broader reach + Joint network planning + Best ship + Land-side cost savings + Operational and system optimisation + Sales and pricing synergies + Corporate overhead savings Risks/Costs On your own Loss of flexibility + Loss of control / decision making + Partner selection + Hard to reverse + Regulation + Integration costs + Transaction risk + Integration costs Examples Standalone niche player Common model Current G6 Future G6? P3 (rejected) HL & CSAV 12 Organizational simplicity Increasing synergies
leaving landside operations as the next untapped savings pool for delivering significant cost reductions Possible Areas for a more integrated landside Collaboration Terminals Pool Terminal Operations especially on US WC Allow multiple terminals to operate as close as possible to being one large terminal Rail Combine Intermodal Operations Operational and contractual interface with rail companies Co-ordination to realise trucking/repositioning savings and improve rail carrier car balance Trucking Trucking and Truck Dispatch Plan movement of all carrier controlled drayage, thereby increasing roundtrip utilization Negotiate common trucking contracts, taking advantage of the scale
There is a considerable potential for reducing costs, particularly in the USA Objectives of a stronger Integration within the Alliances Achieve a competitive cost base across combined operations Goals Reduce the operational complexity of Alliances which is currently a disadvantage Act as a single entity where possible, but without a merger Regulatory considerations Regulatory aspects will need to be managed carefully But initial assessments indicate this is possible according to FMC
Agenda A. Consolidation in the Liner Shipping Industry B. The Way forward for the Industry C. Conclusion 15
Conclusion A more realistic option for the near future? Consolidation vs Alliances There is a constant economic pressure for consolidation, but family and government shareholders continue to be reluctant to give up control Alliances are the best available alternative, but need to be developed further Value added Alliances? Landside operations are the next untapped savings pool for extending the benefits of Alliances Economies of scale don t end when the ship arrives More procurement power Better utilization of assets and resources (also relief of infrastructure) Customers will also benefit from more efficient landside services Operational considerations Alliances need to further reduce their complexity Member Lines should operate like one entity as far as possible permitted by Competition Laws 16
17 THE END!