Oetker Group divesting the shipping division (Hamburg Süd) to Maersk

Press release from Oetker Group, parent of Hamburg Süd 

Dec. 1, 2016

Oetker Group divesting the shipping division Dr. August Oetker KG announces that, after more than 80 years, it is divesting its shipping business and will be selling Hamburg Süd with all activities, subsidiaries and principal assets. Following intensive talks with several interested parties, an agreement has been signed with Maersk Line A/S, Copenhagen, Denmark, which is subject to proper due diligence and the negotiation of a Sale and Purchase Agreement as well as the notification to various regulatory authorities. It is to be assumed that the transaction will be closed in late 2017 at the earliest, once the necessary approvals have been obtained. Global container liner shipping has been generating losses for years in the face of rising overcapacity. Nevertheless, Hamburg Süd has performed well compared with its competitors. It has grown clearly in excess of the market and has financed the expansion of its network as well as the ship and container fleet largely from its own cash flow. The owners and management of Hamburg Süd must, however, recognize that active participation in the consolidation process of the sector currently taking place would entail an even higher capital requirement. This would, in addition, make the balancing of risk within the  Oetker Group business portfolio more cumbersome.
The owners of the Oetker Group have therefore decided to put Hamburg Süd in the hands of new owners. The global market leader Maersk is, in their view, the ideal partner to preserve and further develop the shipping company’s successful business model. With a carrying volume of around 4.1 million TEU (twenty-foot equivalent units) and a slot capacity of approximately 625,000 TEU Hamburg Süd ranks among the world’s ten largest container shipping companies. The tramp, product tanker and other operations make up some 7 percent of the total turnover. The shipping company has roughly 6,000 employees and, with revenues of around 6.1 billion euros, contributes just under 50 percent to the total sales of the Oetker Group (all figures refer to the 2015 financial year). 
 

Hamburg Süd expected to be sold

Hamburg Sud has been owned by The Oetker Group since 1936.    The German government has been very supportive of the shipping industry, offering important tax advantages which has made Hamburg Sud important to The Oetker Group portfolio.

I do not know if these tax advantages have diminished, or if it is the overall sorry state of the outlook for the shipping industry which has finally caused The Oetker Group to decide to sell this business.  I suspect it's that the tax advantages no longer outweigh the poor economic outlook for this industry, and Oetker has decided to not wait out the supposed return to viable profitability.     Also, I believe the Chairman has reached maximum retirement age, so it would be a good time to sell.  No CEO likes to see their job eliminated.

Profitability will only be restored in the shipping industry if there is consolidation, which will be a way to decrease/control capacity.    After the extreme downturn in 2008 (after the massive demand in the years just prior),  all of those folks running shipping companies said "now is the time to buy new ships...the cost is low and the industry will turn around in a few years".   So, they bought and bought, and ordered and ordered, and yet the demand did not nearly match the supply.  

Companies started scrapping ships, only to see their competitors add capacity and cut rates.   The larger companies tried to convince the others to reduce capacity, go into joint ventures sharing ships, and all those things one does in this industry to reduce capacity in the hope they can increase rates.   It didn't work, and finally in the last several months carriers are going bankrupt, (witness Hanjin),  merging (the 3 Japanese lines, Nippon Yusen KK, Mitsui O.S.K. Lines Ltd. and Kawasaki Kisen Kaisha Ltd. agreed in Oct 2016 to merge), or be sold.   

The shipping industry has not taken advantage of the efficiences which could be achieved by adapting new computer technology for booking, pricing, documentation, tracking, etc.   Why isn't there an app for that?

The ocean carriers became wholesalers of their transport services many years ago, turning over way too much of the control to the forwarders, consolidators, NVOCC's, whatever you want to call them.    Sure, it's much easier to accept a fully loaded container called "Freight All Kinds" than it is to do the hard work of loading, pricing, each individual small shipment, but that is where they failed.

I haven't posted for a year because honestly, I got tired of hearing myself always complain about the bad decisions made by those running these companies.   The consolidation which I have been saying for years has begun to occur.

Now let's see if anyone in the industry can get smart and improve their computer systems and regain the profitable cargo.



The comments expressed here are my own.

CMA CGM- 2015 3rd quarter results

CMA CGM announced their 3rd quarter 2015 results.  The operating profit for 3rd quarter 2015 is
less than the 3rd quarter of 2014.   Here are some details from their web-site.

MD&A 30th of September 2015 versus 30th of September 2014 

 Operating revenue General:

Consolidated operating revenue decreased by USD 408.5 million, or 3.3% from USD 12,509.1 million in the first 9 months of 2014 to USD 12,100.6 million in the first 9 months of 2015 primarily due to a 3.9% decrease in shipping revenue and a 5.3% increase in other activities. Transported volumes increased by 6.5% or 593 thousand TEU, from 9,110 thousand TEU in the first 9 months of 2014 to 9,703 thousand TEU in the first 9 months of 2015. 

click here for link to complete summary

And, from the finance report

OPERATING PROFIT BEFORE GAINS ON DISPOSAL OF PROPERTY AND EQUIPMENT AND SUBSIDIARIES, DEPRECIATION & AMORTIZATION, etc.

            For the nine-month period ended                            For the three-month period ended
                 2015                          2014                             2015                       2014

                1,137.8                      876.4                             243.7                      325.1

As you can see, the first 9 months the profit increased, but for the 3rd quarter is decreased compared\
to 2014.  This does not bode well for end year 2015 results.

click here for link to finance report

Scorpio Bulkers Inc. - one-for-twelve reverse stock split

Press Release from Scorpio Bulkers

Scorpio Bulkers Inc. Announces Reverse Stock Split to Be Effective December 31, 2015
MONACO--(Marketwired - Dec 30, 2015) - Scorpio Bulkers Inc. (NYSE: SALT) (the "Company" or "Scorpio Bulkers") announced today that its board of directors (the "Board") has determined to effect a one-for-twelve reverse stock split of the Company's common shares, par value $0.01 per share, and a reduction in the total number of authorized common shares to 56,250,000 shares. The Company's shareholders approved the reverse stock split and change in authorized common shares at the Company's special meeting of shareholders held on December 23, 2015.
The reverse stock split will take effect, and the Company's common shares will begin trading on a split-adjusted basis on the New York Stock Exchange ("NYSE") as of the opening of trading on December 31, 2015. A new CUSIP number will be assigned to the Company's common shares when the reverse stock split becomes effective.
When the reverse stock split becomes effective, every twelve of the Company's issued and outstanding common shares will be combined into one issued and outstanding common share, without any change to the par value per share. This will reduce the number of outstanding common shares from approximately 344.2 million shares to approximately 28.7 million shares.
No fractional shares will be issued in connection with the reverse stock split. Shareholders who would otherwise hold a fraction of a common share of the Company will receive a cash payment in lieu thereof at a price equal to that fraction of a shares to which the shareholder would otherwise be entitled, multiplied by the closing price of the Company's common shares on the NYSE on December 30, 2015.
Shareholders with shares held in book-entry form or through a bank, broker, or other nominee are not required to take any action and will see the impact of the reverse stock split reflected in their accounts on or after December 31, 2015. Such beneficial holders may contact their bank, broker, or nominee for more information.
On December 17, 2015, the Company received notice from the NYSE that the Company was no longer in compliance with the NYSE's continued listing standards because the average closing share price of its common shares over a consecutive 30 trading-day period ending December 15, 2015 has fallen below the requirement to be at least $1.00 per share. The purpose for seeking shareholder approval to effect the reverse stock split was to increase the market price of the Company's common shares. The Compapany believes that the increased market price for its common shares that is expected as a result of implementing the reverse stock split will cure this deficiency.

In a separate release, Scorpio announced the sale of 5 vessels, 2 of which are still being built.  

It appears the management is doing everything they can to hang on.  The question is, will it be enough?

New Rules for container weighing

As from July 1, 2016 the International Maritime Organization (IMO) amendments to the Safety of Life at Sea (SOLAS) Convention requires the shipper of a packed container to provide the container`s verified gross mass (VGM) prior to stowage aboard ship.

This is VERY IMPORTANT.  Beginning July 1, 2016, shippers will be required to VERIFY the
weight of the contents and packaging inside the container they deliver to be shipped.

Here is a link to the brochure published by The World Shipping Council.

http://www.worldshipping.org/industry-issues/safety/faqs/SOLAS_VGM__Industry_FAQs_Dec_2015_US_letter_WEB.pdf

Christmas at sea and in the port of Hamburg | Traditions and customs

Mergers Ahead

Now that CMA CGM will purchase NOL (APL), and China Shipping and COSCO are set to merge,
what will be the next mergers?

Hapag Lloyd was looking to buy NOL, but lost out to CMA CGM, so will Hapag Lloyd be looking for another line to acquire?

Who are the likely candidates?

A merger between the two Korean companies, Hyundai Merchant Marine and Hanjin Shipping is possible. Even though the stock of each company is traded on the Korean stock exchange, somehow I think the government would not let either company be sold to a non-Korean company.

OOCL is listed on the Hong Kong stock exchange.  I don't know if there is a majority owner who could possibly block a sale.  According to published data they are making money.  If I were looking to buy a shipping company, this one has possibilities.

Yang Ming's stock is listed on the Taiwan Exchange.  According to Bloomberg, this company has negative earnings of around 1.00, with the stock trading around 8.00.   This company is leasing newbuilds (ships) from Seaspan, and I don't know how many of their fleet might be owned.  The fundamentals of this company look problematic.  They might be purchased cheaply, but if the industry continues in it's downward trend this company might not make it.

That's it for now.