World Shipping
Economic Woes of the Container Shipping Industry

UASC, Hapag-Lloyd seek EU nod for deal with concessions ... UASC is majority-owned by the government of Qatar ... Hapag-Lloyd merger reveals UASC’s huge net losses

Burgess COMMENTARY

Peter Burgess

UASC, Hapag-Lloyd seek EU nod for deal with concessions

UASC is majority-owned by the government of Qatar.

German container shipping line Hapag-Lloyd and Kuwait-based United Arab Shipping Company (UASC) have submitted concessions aimed at securing EU antitrust approval for their billion-euro merger.

The companies put in their offer on Oct. 28, according to a filing on the European Commission website on Monday. UASC is majority-owned by the government of Qatar.

The EU's competition body, which did not provide details, will now seek feedback from customers and rivals before deciding whether to accept the concessions, demand more or open a full investigation. It will decide on the next step by Nov. 23.

The merged company would be the fifth largest player globally in terms of carrier capacity, just behind COSCO Container Lines, with access to the important Asia to Europe trade route and trans-Atlantic and trans-Pacific routes.

The container shipping industry has seen a wave of consolidation in recent years as shippers try to tackle the worst slump for 50 years caused by overcapacity and weak global economic growth.

In addition to mergers, companies are also seeking alliances to pool trips and save costs.

Hapag-Lloyd merger reveals UASC’s huge net losses

A negative operating margin of -9.0% makes UASC the worst performer among all main container carriers that have published financial results for 2015.

The United Arab Shipping Company (UASC) suffered an operating loss of US $299-million and a net loss of US $384-million in 2015 off of a revenue of US $3.32-billion.

The figures were revealed by Hapag-Lloyd as part of its obligatory disclosures as a public company before an upcoming Annual General Meeting, scheduled to be held in Hamburg at the end of August.

At the meeting, the German carrier will seek shareholders’ approval to amend its capital structure to complete a planned merger with UASC.

UASC has until now never disclosed its financial results as the shipping line is privately owned by six GCC states. The depth of its underperformance will likely cause some hesitancy among Hapag-Lloyd shareholders.

A negative operating margin of -9.0% makes UASC the worst performer among all main container carriers that have published financial results for 2015.

UASC’s poor financial performance has continued in 2016 with an operating loss of US $132-million and net loss of US $201-million on revenues of US $1.5-billion in the first six months of the year.

UASC’s negative operating margin of -8.6% was only surpassed by the two struggling Korean carriers, Hanjin Shipping and Hyundai Merchant Marine, which reported January to June margins of -9.8% and -18.5%, respectively, for their container shipping divisions.

The stretched balance sheet of the Middle East’s leading shipping line was also laid bare, with total financial debts of US $4-billion as of the end of June 2016, against an equity base of only US $1.9-billion.

UASC’s equity position fell short of the minimum threshold of US $1.9-billion that was agreed with Hapag-Lloyd under the terms of the planned merger.

This could mandate a compensatory payment by UASC shareholders at the time of merger’s completion.