News That CSAV Is The Least Profitable Boxline Overshadows Hapag-Lloyd Merger

Shanghai-Express-hapag-lloyd-ship
Image: Hapag Lloyd

By Mike Wackett

The scale of the challenge facing Hapag-Lloyd’s management team overseeing the integration of CSAV has been underlined by new research from Alphaliner which shows how the Chilean carrier was the least profitable shipping line in the first half of this year.

Alphaliner surveyed 17 carriers that had delivered first-half results, and CSAV came bottom, with a negative operating margin of -7.8%, compared with an industry average of -0.5%.

And despite an overall rebound in global trade, CSAV’s first-half performance was even worse than last year, when it recorded a negative operating margin of -3.5% in the first half.

CSAV’s undiversified service network, heavily dependent on the Latin America trades, suffered from poor volume growth and lower freight rates this year.

According to Alphaliner’s data, CSAV has now accumulated $2.38bn in losses since 2008, obliging the carrier to continually seek more financial support from its stakeholders.

It said: “The continuing losses at CSAV have forced the company to ask its shareholders for more cash, even as it prepares to merge with Hapag-Lloyd.”

CSAV raised $202m last month through a rights issue that, according to the analyst, received a “tepid response” from shareholders, and is now seeking a further $400m which will be used mainly to subscribe to the amount committed in the first capital increase in Hapag-Lloyd following the merger, taking CSAV’s shareholding from 30% to 34% in the new entity.

However, it enjoyed a strong quarter for cargo in the three months to the end of June, lifting 504,400teu compared with the 467,400teu carried in the same period last year, while the 171,500teu carried in June was its highest monthly lifting in the past 10 months – but higher volumes remain unsupported by higher freight rates.

CSAV argued that the net loss for the second quarter of $58.5m – making a cumulative $124m of red ink at the half-year stage – was “mainly due to the complex scenario that the shipping industry continues facing”, evidenced by its own worrying 9.9% year-on-year decrease in its average container rate.

However, $18.6m of the loss was a hit from the sale of CSAV’s interest in its messy joint-venture with the DryLog bulk shipping organisation, taken into the accounts of the container business.

Turnover for the period was $709m, down from the $774m it registered in the second quarter of 2013.

The integration of CSAV’s container business into German carrier Hapag-Lloyd will produce, predict the two parties, annual savings of $300m by 2016/2017. But in the interim, there will be merger costs, already estimated at $63m. Moreover, CSAV’s first half loss added to a $237m deficit posted by Hapag-Lloyd does not bode well for a short-term profitable outcome.

Assuming that the deal closes sometime in the final quarter of the year, the new board of Hapag-Lloyd will have some very tough decisions to make to bring the merged organisation on track for profitability in 2015, with staff casualties in both Europe and South America feared.

CSAV chief executive Oscar Hasbun said: “CSAV continues showing a significant improvement in its cost structure, which is in line with the strategy of the company’s new operational model.”

However, despite Mr Hasbun’s optimism, in the months leading up to the merger, CSAV will face further pressure to refuse low-rated cargo and to stem the tide of decline in its average freight rate per teu.