Hamburg Süd would be interested in joining theOcean Three alliance if its first steps into the east-west trades prove successful.
That would also mean becoming a tonnage provider and eventually contributing 18,000 teu-class ships in the Asia-Europe leg of the global partnership, Hamburg Süd’s executive board chairman Ottmar Gast said in an interview following the release of the German line’s 2014 performance review.
Acknowledging that becoming the fourth member of the new alliance was still a sensitive issue and not under formal negotiation at this stage, Mr Gast nevertheless said in the long-run, it would “make sense” for Hamburg Süd to have “a higher share of the overall capacity” in the Asia-Europe trades if its initial foray works out.
That could result in full membership of the Ocean Three group of CMA CGM, United Arab Shipping Co and China Shipping, which was formally inaugurated a few weeks ago, if the other members agreed.
Hamburg Süd has already signed a global co-operation agreement with UASC that will give it access to the Pacific and Asia-Europe trades through slot charter arrangements. In return, UASC will have space on some of Hamburg Süd’s South American trades.
Unlike the other global alliances, Ocean Three is a more flexible group that allows members to team up with other carriers where appropriate.
CMA CGM group vice-chairman Rodolphe Saadé said last month the Ocean Three group could accept more partners.
"We are open, if we wish, to add more players to Ocean Three," he told Lloyd's List.
North-south specialist Hamburg Süd needs to reduce its dependence on the South American trades, which have suffered from stiff competition in recent years as lines with ultra large containerships cascaded displaced tonnage into other markets, Mr Gast acknowledged.
Although freight rates in the highly commoditised Asia-Europe corridor have plummeted over the past few months, the South American trades had been even more badly hit, said Mr Gast.
Spot freight rates between Shanghai and the South American east coast, at around $440 per teu, are almost as depressed as those from Shanghai to northern Europe. But ship sizes are smaller, making slot costs more expensive. Port charges are also higher.
So pressure on the bottom line is even worse than in the Asia-Europe trades, Mr Gast pointed out.
“We are too dependent on the markets where we [used to have] a high trade share,” he said.
As lines that had focused on east-west operations started to move into the north-south trades, so privately-owned Hamburg Süd began to lose the competitive advantage it had enjoyed for so long.
In an interview with Containerisation International and Lloyd’s List, Mr Gast said the Ocean Three alliance would be the most logical one for Hamburg Süd to join, assuming the three founders were in favour, since the older partnerships such as G6 or CKYHE would not have welcomed a newcomer to the already crowded Asia-Europe route.
“Nobody would have invited us to join an established co-operation. We have not been in the east-west trades before, so we would not have expected somebody to say ‘hey, come in, we are looking for another competitor’,” said Mr Gast.
But UASC, having ordered 18,000 teu ships and with global ambitions of its own, was looking for a partner with a good reputation and also able to generate cargo, particular from Asia to South America via Europe.
“This is an opportunity to step into these markets without taking too high a risk, because if we had entered the east-west trades by ourselves, we would have had to establish our own ship system, and would have created so much overcapacity that we would have destroyed the market and produced large losses, which would have been unacceptable,” said Mr Gast.
The intention, he continued, is to go slowly at first, gain experience of these new markets, and then decide whether or not the expansion had been successful.
“If yes, then I think we should continue,” Mr Gast said.
At that stage, Hamburg Süd probably would have to contribute its own ships to both the Pacific and Asia-Europe trades. Whereas Hamburg Süd’s 9,000 teu and 9,600 teu newbuildings would be suitable on the Pacific, vessels of 14,000 teu up to 18,000 teu or more are becoming the workhorses of the Asia-Europe trades.
“If you do not have these ships, you cannot be competitive,” Mr Gast noted.
But initially, the line might deploy smaller ships it already has in its fleet in one of the sub-trades along the main east-west corridor.
Once fully committed to the main Asia-Europe trade, however, Hamburg Süd would have to make a similar big ship commitment, he agreed.
At what stage Hamburg Süd becomes a tonnage provider in the east-west trades depends on market developments in these trades, and the prerequisite that the existing consortium decided to increase capacity and perhaps introduce an additional string.
With no market protected from outside competition any more, the goal is to broaden Hamburg Süd’s network as a hedge against particular weakness on one route when others might be doing better.
Mr Gast defended the recent acquisition of CCNI, which will increase Hamburg Sud’s exposure in the Latin American trades, as a line that had been in the German carrier’s sights for a considerable length of time.
“From one perspective, it does not make sense,” he admitted of the investment, “but we have been after CCNI for many years, and this was the last potential carrier that we could take over.”
After a long wait, the opportunity finally arose to buy CCNI, with the deal giving Hamburg Süd more influence in certain trades.
While the overall strategy is to reduce dependence on the South American trades, Mr Gast more or less ruled out further merger or acquisition activity in other sectors.
“There is nothing left,” he said, with Hamburg Süd not interested in combining with another line that was the same size, or bigger.
However, Ocean Three membership is of interest to Hamburg Süd. And should that happen, the line would almost certainly have to provide ships as well, Mr Gast predicted.
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