Ocean Cargo: Over-capacity concerns may have given NOL cold feet

Patrick Burnson, Executive Editor -- Logistics Management, 10/13/2008

DENVER—Given the fact that ocean carrier capacity is ramping up while shipper demand is slackening, news that NOL backed out of buying Hapag-Lloyd comes as small surprise to many analysts.

German group TUI AG has agreed to sell its Hapag-Lloyd container shipping business to a Hamburg-based consortium led by Klaus-Michael Kuehne of global forwarding and logistics group Kuehne-Nagel yesterday. The announcement came just days after LM had reported that NOL had withdrawn its offer.

Industry analysts at the Council of Supply Chain Management Professionals (CSCMP) Annual Conference, meanwhile, suggested that shippers may become less reliant on ocean carriage for sourcing in the coming years.

“We may soon see greater scrutiny placed on ‘total landed costs’ in the future,” said Richard Bergmann, a partner with Accenture. “Sourcing goods from China and India may not be the way to go for many U.S. manufacturers who can use Mexico again.”

NOL CEO Ron Widdows seemed to concur with this observation by noting in a statement that “NOL will now put all its energy into managing through the current container shipping down cycle.”

Widdows also noted that NOL had submitted a bid that they believed fully valued Hapag-Lloyd and which “addressed the challenging market conditions facing the container shipping industry.”

TUI will be an active investor in the new company by investing a 33.33 percent stake in the new company. According to TUI CEO Dr. Michael Frenzel, this permits the company to benefit from future earnings potential. Meanwhile, the transaction will be subject to approval by the anti-trust authorities, and Frenzel will remain head of the supervisory board of Hapag-Lloyd.