Pluses and miuses

Pluses and miuses

The big story in shipping right now is Hapag-Lloyd, the German carrier that's the world's fifth-largest container line in vessel capacity. Will it be sold, spun off or merged?

At this point, the outcome is hard to predict. The only thing certain is that any potential buyer is making a list of the potential pluses and minuses. They seem to come in pairs.

Start with a plus: Hapag-Lloyd is an illustrious shipping name with a proud history and solid market position. The minus, for Hapag-Lloyd as well as for other lines, is that this doesn't translate into consistent profitability.

Another plus is that Hapag-Lloyd has a modern container ship fleet. The minus: So do many other lines, and the surge in shipbuilding in recent years is likely to produce some overcapacity in the short run - a development that shippers have used to negotiate rates downward.

Of course, the increase in nominal capacity is minimized by port congestion and the employment of ships on longer routes. And the increased capacity wouldn't necessarily be a minus if carriers use their brains and avoid the temptation to hold on to market share by filling every last slot at any cost.

A minus for most container lines is that for years they've permitted themselves to be suckered into subsidizing U.S. inland moves. Maersk Line has taken the lead in extricating itself from this trap, and some other lines are following on a more limited basis. Hapag-Lloyd, however, is primarily a port-to-port operator with less exposure to intermodal costs.

A minus: Container shipping is becoming increasingly commoditized, with a narrowing spread in rates - and service quality - between first-tier carriers and lines that traditionally have been bottom feeders. A possible plus: Carriers could forestall the trend toward commoditization by improving their customer service, something that's becoming a lost art.

Another minus: The global economy may be slowing, and the U.S. economy is clearly in the doldrums, at least for the short term. But that's balanced by a plus: Virtually everyone agrees that the long-term direction of world trade, and container traffic, is upward.

A possible plus: Hapag-Lloyd's routes appear to be complementary to at least two rumored potential suitors, APL and Hamburg Sud. A possible minus, at least for APL: Hapag-Lloyd's customer base is heavily weighted toward European forwarders and 3PLs, while APL emphasizes value-added logistical services.

Another minus: Carriers generally have struggled with big mergers. Hapag-Lloyd's acquisition of CP Ships took a while to digest, and Maersk went through a rough period after buying P&O Nedlloyd.

That's a back-of-the-envelope list of pluses and minuses. The parties involved undoubtedly have a longer one.