Burgess COMMENTARY

Peter Burgess

TRANSPORTATION ... Maersk New Acquisition Strategy Might Target Both Hanjin and Hyundai Assets

AP Moeller-Maersk A/S's container line, which this month ditched a strategy of building new vessels and will instead try to grow through acquisitions, is targeting South Korea's two biggest shipping firms, according to Jefferies International Ltd. By 24/7 Staff

Research shows that effective price management can increase margins by 2 to 7% in as little as 12 months, and yield a 200 to 350% return on investment.

Hanjin Shipping Co last month filed for bankruptcy protection and Hyundai Merchant Marine Co is in the middle of a creditor-led debt-restructuring program.

Both are in need of a strong partner and Maersk Line, the world's biggest, is probably the only rival with the financial muscle to manage a takeover, David Kerstens, Jefferies's transport analyst in London, said in an interview.

'Maersk, as the market leader, will definitely participate in the consolidation - they will have to,' Mr Kerstens said.

But 'the takeover options for Maersk are fairly limited, as most container lines are already tied up in alliances or are family or government-controlled. The most likely scenario is that Maersk would take over the assets of Hyundai and Hanjin.'

Michael Pram Rasmussen, the chairman of Maersk, revealed last week that the company's container line - long a pioneer in ship building - will now pursue takeovers to avoid flooding the market with new vessels. He declined to comment on Hanjin Shipping and Hyundai Merchant. Spokespeople from the two Korean companies also declined to comment.

David Kerstens

“Maersk Line is probably the only rival with the financial muscle to manage a takeover”David Kerstens, Jefferies's transport analyst After years of surplus capacity and declining freight rates, the container shipping industry is in dire need of further consolidation if it is to weather a slowdown in global trade growth.

Liners have already responded with mergers and formed vessel-sharing alliances to cut costs, but more needs to happen.

'There's been a lot of consolidation this year and many of the container lines just behind Maersk have grown,' Mr Kerstens said. 'So Maersk is faced with substantially stronger competition.'

Maersk Line, which hasn't made a large acquisition in more than a decade, is in an alliance with the world's No 2, Mediterranean Shipping Co, while Hyundai Merchant is in talks to join the venture.

Hyundai Merchant has about 2 per cent of the global market while Hanjin Shipping had roughly 3 per cent, about half of which was chartered vessels.

Mr Kerstens, and fellow analyst Rahul Kapoor at Drewry Financial Research Services Ltd, said Maersk would be more interested in buying Hanjin Shipping's vessels rather than the entire bankrupt company.

The South Korean firm's container ships are worth about US$1.4 billion, according to VesselsValue.

South Korea's government said last week it's drawing up plans to improve competitiveness in the shipping industry and to help Hyundai Merchant transport exports as the country's sole flag carrier.

Among plans being considered are whether to help the company purchase 'affordable' vessels or to order new ships, Vice Minister of Oceans and Fisheries Yoon Hag-bae said Sept 23.

Maersk Line, which as market leader controls about 15 per cent of the world's container capacity, only ranks third in Trans-Pacific trade, where it ships 8 per cent. Buying Hanjin Shipping and Hyundai Merchant would double its market share on that route, Mr Kerstens said.

'For Maersk it will be most interesting to buy something that complements its current network and it's in particular the Trans-Pacific trade where Maersk's market position is relatively weaker,' he said.

Source: Christian Wienberg and Kyunghee Park Bloomberg News

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