Ocean cargo: NOL makes play for Hagag-Lloyd—shippers not happy

Patrick Burnson, Executive Editor -- Logistics Management, 7/22/2008

SAN FRANCISCO—Another example of ocean carrier consolidation came with news yesterday from Singapore that Neptune Orient Lines (NOL) is making an “indicative non-binding offer” for Hapag-Lloyd.

Spokesmen for NOL stated that a completed transaction would result in the integration of NOL’s container shipping business—APL—with Hapag-Lloyd, but that at this stage it is “premature” to say whether it will lead to a done deal.

Not all shippers are buying it, however.

 “From an exporters standpoint, oligopolistic competition in the shipping industry is not positive,” said Eric Stubin, president of Shipper of Recycled Textiles (SORT) in Clifton, New Jersey. “Exporters will have less choice, and rates will tend to increase in an already inflationary rate environment.”

In an interview with LM, Stubin noted that ocean cargo shipping remains one of the few industries exempt from anti-trust.

“And most exporters are still wondering why this is allowed,” he said. As we see repeatedly, markets are dynamic and at some point all of this excess capacity will be a significant issue for some of the largest entities.”   

Up until recently, NOL had been battling German investors intent on keeping a grip on Hapag-Lloyd, and A report issued last month by JP Morgan's Asia Pacific Equity Research division strongly suggested that this might not be the right move for NOL.

Investment analysts also noted that NOL will be obligated to take on the German company's substantial freight forwarding customer base, which might further undermine its existing relationship with shippers.

“We think NOL is better off not to acquire Hapag-Lloyd considering the hostility towards foreign ownership within Hapag-Lloyd and the potential high price that an acquirer may be required to pay,” Johnson Man Leung, an analyst at JPMorgan, stated in the report.