Mergers continue: Hapag-Lloyd to buy CP Ships

By James A. Cooke -- Logistics Management, 9/1/2005

TORONTO—Ocean shippers could have fewer shipping options if German liner company Hapag-Lloyd merges with CP Ships Ltd. of Toronto. Last month, Hapag-Lloyd's parent, TUI AG of Hannover, Germany, offered to buy the Canadian ocean carrier for about US $2.3 billion. The deal requires regulatory approvals in Canada, the United States, and Europe.

TUI said the acquisition would fortify Hapag-Lloyd's container business and allow it to stay competitive in an industry that increasingly is dominated by giant shipping lines.

"The combination of Hapag-Lloyd and CP Ships will create a company with the strength and scale to compete effectively in an industry where consolidation is changing the landscape," said Hapag-Lloyd CEO Michael Behrendt in a statement announcing the deal. Indeed, many analysts see TUI's move as a response to the planned amalgamation of Maersk Sealand and P&O Nedlloyd, which will create the world's largest ocean carrier when it finalizes later this year.

The merger of CP Ships and Hapag- Lloyd will result in the formation of the world's fifth-largest container line, with a fleet of 139 ships. The combined carrier would have a capacity of 400,000 TEUs (twenty-foot equivalent units) and would offer service on more than 100 routes across the globe. The two carriers had combined sales last year of approximately $7 billion.

CP Ships operates 38 container services on 22 trade lanes in four key regional markets: trans-Atlantic, Australasia, Latin America, and Asia. The company also owns Montreal Gateways Terminals, one of the largest ocean container facilities in Canada.

Hapag Lloyd's 57 container ships ply routes between Europe and Asia, Europe and North America, and North America and Asia. The carrier hauled 2.4 million TEUs worldwide in 2004.

Although growing consolidation in the container shipping industry raises concerns that it could trigger higher freight rates, at least one industry expert is taking a positive view of the proposed deal. "While there's always the fear that consolidation leads to more market power and higher rates, there's been so much consolidation already that I don't think this will change the market dynamics," says Mark Kadar, a director in Mercer Management Consulting's transportation practice. "Hapag Lloyd will take some costs out of CP Ships and make it a more efficient organization."

Kadar went on to note that container lines will require efficient operations to survive the next downturn in shipping rates. "It's really helpful for shippers to have stronger companies out there," he says.