The hidden strength of mergers & acquisitions

00:00:02: The most difficult part is to ensure that you make the best team out of two teams.

00:00:08: You need to make sure, that you identify all them because thats when your making a better team.

00:00:20: When I first started writing about shipping many years ago there were dozens deep sea container lines including some really iconic names.

00:00:28: Now, following wave after wave of consolidation.

00:00:31: There are only about ten global carriers.

00:00:34: one which I'm glad to say is Hapagloid Which has been at the heart of the consolidation process over the past two decades.

00:00:41: So i am curious how does Hapaghloid manage survive and so many others have disappeared from scene?

00:00:47: Good question you know there's always a certain element of luck in it as you can't control all factors but I would say that Hapak Lloyd has always been, a quality player who was respected by many customers and is at the heart of everything.

00:01:00: If you don't earn the business of your customer every day then it's going to be very difficult.

00:01:06: Apart from this over the last couple decades we've done a number of acquisitions ourselves which certainly helped us get into scale needed in todays industry.

00:01:17: What are pros & cons between organic growth and mergers?

00:01:22: The benefit of it is that you typically can make progress quicker when its around retaining or gaining market share.

00:01:30: In many cases, also gives us access to markets where we are not able to address before.

00:01:36: on the flip side of course M&A typically costs quite a lot money.

00:01:41: so as such You better be sure if your do something like this That in the end you're the best owner for other assets.

00:01:48: Otherwise don't create value but actually destroy.

00:01:52: Yeah, I can see from the choice of companies that you have merged with.

00:01:55: There's been definitely a geographic advantage starting with CP ships which is very much sort of North American consolidator itself CSAV from Chile United Arab shipping company so in the Middle East and then more recently Deutsche-African Nile Dutch.

00:02:10: So was there

00:02:12: luck

00:02:12: or did you seize opportunity?

00:02:14: Or were they singled out?

00:02:16: I think it varies.

00:02:17: i guess In most cases we've always been looking for those type players that would really bring something extra to Hapak Lloyd.

00:02:25: As you already mentioned, CP ships very strong presence in Canada and Mexico even if we look at the markets today.

00:02:31: but they still have very strong positions in those markets Even it's mean time over twenty years ago when that transaction took place.

00:02:38: I think CSV Latin America Very complimentary toward what we did.

00:02:43: We were stronger on east west Today was stronger north south And I think with UASC, that was not only geographical as they were very much present on routes we are operating.

00:02:55: But they certainly also had an asset base which didn't have bigger ships and then of course a number smaller transactions.

00:03:01: well to tap into niche markets.

00:03:05: So it's always struck me the easy part is choosing who you want to acquire or merge.

00:03:10: in difficult parts comes following the actual... transaction, you've got to win over the customers and staff your vendors or partners.

00:03:18: The IT systems that I have written a lot about different mergers and acquisitions of these are to be fair they haven't all gone well.

00:03:25: so what would you say you learned in years?

00:03:27: What is the easiest bit and what is the trickiest bit?

00:03:31: I think the easiest part probably there's some big decisions.

00:03:38: What is for example going to be the platform, what it's going to do organizational model.

00:03:43: I think those type of choices you have to make early.

00:03:45: The most difficult part is too To ensure that you made a best team out of two teams because You know you always had this unconscious bias towards these people.

00:03:57: and in end you will find if your team up with somebody else great and talented people that you do not have.

00:04:05: And, You need to make sure that you identify all of them because thats when your making a better team!

00:04:11: That's probably one the most important if not sometimes underestimated little bit hidden benefits of teeming up with other companies.

00:04:21: I think that one of biggest pluses of teaming or combining forces is that you find more talent and that the combined team is typically stronger than two teams individually.

00:04:34: Finding that talent, identifying that talent must be quite

00:04:39: hard?

00:04:39: It's also a matter of just making sure you dedicate sufficient time to it!

00:04:43: If you start with me as well my counterparts potentially in your company acquire.

00:04:51: if we don't spend our time on identifying best people for their job then we don't do our job properly.

00:04:57: I mean many things when you combine.

00:05:00: shipping lines are fairly easy, the synergies that you can achieve on this cost side and not so difficult to achieve.

00:05:08: what is much more difficult it's to create a new culture or identity which makes the combined business better than individual ones before them.

00:05:19: Well yeah, corporate culture is very important and Hapag has seen it as a German line.

00:05:24: And yet you have merged with the Chilean line an Arab Line and North American lines of different cultures.

00:05:31: so again just getting that culture right must be really challenging

00:05:35: Yeah but its also about making sure to mix your teams.

00:05:38: I mean if you look at Hapak today here in Hamburg we've got over forty nationalities working on their headquarters.

00:05:46: If you look at the number of people that are in our higher management ranks, they come from CSFV or even CP ships.

00:05:55: That's a big chunk of the management we have.

00:05:57: and also how to blend those cultures respect what they bring because it always brings something which is something you don't have And then you can truly become better together Or move forward quicker.

00:06:13: But how do you also reassure your customers?

00:06:15: Because I know from experience of writing about transactions in the past, while some transaction is going on or your competitors are taking aim at your customers.

00:06:23: So how to go out?

00:06:24: re-assuring them as well that they end product it's gonna be better?

00:06:27: I think when we try and bring down something fairly simple... In the end three things really important for two companies together.

00:06:36: The first one already discusses people.

00:06:39: The second one is systems where you need to be clear on how your want set it up.

00:06:42: and the third ones are customers.

00:06:44: If you can retain a customer, select their best talent... ...and do smooth transition in IT side then you're good!

00:06:51: All rest comes more or less automatically And I think that over years we've developed at least fairly good model for doing this.

00:06:59: When i look when we merged with csv I think we lost two or three percent volume for about three months.

00:07:06: And after that, we were back on the level that we were before and since then we have been growing.

00:07:11: in case with UASC?

00:07:13: We never ever lost any volume because when you look at combined business it continued growing also right after closing.

00:07:21: so to me The key is really focus of these things people its systems and customers.

00:07:28: well systems in particular past transactions haven't always gone well because people have tried to keep two IT systems going together, not Hapag Lloyd.

00:07:37: I hasten that.

00:07:38: And i think one of your predecessors said you've just got to go really quickly.

00:07:41: You've gotta get rid of the system and stick with other ones.

00:07:44: is it correct?

00:07:45: Well...I think you need be clear on what you want to do..and you're right!

00:07:48: You need move to a platform fast ..and my hypothesis would probably be if we put two large liner companies together they both will have a system which allows us moving containers.

00:08:02: As long as that's the case, then you just need to make sure... ...that you take the best platform and move everything onto one platform.

00:08:10: Doing this in-and of itself is not that complicated I think.

00:08:15: when we look back at transactions which were not so successful In many cases people are looking for a best-of-three set up from day One or Day Two.

00:08:26: That turns out very difficult If you move everything to one platform, take out a lot of technical complexity and make it easier for the customers.

00:08:37: And also people who then know what to train.

00:08:41: So looking at where do you achieve the biggest cost savings?

00:08:45: Because that's partly all about your bigger market share.

00:08:47: but you've got to get synergies as well.

00:08:51: so is in headcount amalgamating fleets or other ways of cutting costs.

00:08:56: I always say that when you look at the synergies, they in essence what do is put two companies together.

00:09:03: You reduce number of services and increase size of ships that deploy.

00:09:09: That's what drives most of the synergies.

00:09:12: If i take an example with CSFE for example we had both services from Europe to South America.

00:09:21: Those were two services, I think we both operated them with ships of three or four thousand to use.

00:09:27: And then we replaced that one service which had a pretty similar rotation than the individual servers have but deployed ships of eight thousand to us.

00:09:36: That saves you a humongous amount money and in end it's always about simplification and scale.

00:09:44: I would say that in shipping, it's relatively easy.

00:09:48: Reduce the number of services and deploy bigger

00:09:51: ships.".

00:09:52: What about branding?

00:09:53: Because some lines who have been engaged with a lot of M&A activity... ...have retained the brands of companies they bought.

00:09:59: you haven't!

00:10:00: Why is

00:10:02: this so?

00:10:02: In the end we did not do that because we felt at the point where you also made in the beginning.. ..about culture identity as important.

00:10:12: If you want to be clear are going to one new identity, then you may need to refresh a brand or show it different.

00:10:23: But is very important that you go to one brand.

00:10:26: if you would retain the historical brands of say Hapagloid and CSFU or Hapakloid in UASC Then you will see there's lot people in their minds remain those old companies.

00:10:38: If You Want And I think thats where... ahead, it's much better to go one brand and that helps people see the future.

00:10:47: I think our experience with that has definitely been good.

00:10:50: Yeah!

00:10:50: And i'm guessing its quite expensive as well to maintain numerous different brands?

00:10:54: It is but...I've also lived through this myself when I started working at Netloid.

00:10:58: we were taken over by Deutsche Post which then became Dancers & DHL Of course for those who have worked in these companies a long time.

00:11:07: Its difficult say goodbye to a Brand But its also Good because You know, by stepping away from that old brand you also create a new perspective.

00:11:17: And sometimes it then helps if we do simple things.

00:11:20: I remember when Deutsche Post and DHL brought together a lot of companies under the DHL Brand.

00:11:26: they changed their visuals to the DHR Brand.

00:11:28: They made them red & yellow instead of red & white.

00:11:32: That was small change but it made difference for people in the field because they felt like OK We're going be operating on different name But it's also going to be a new company because it has different brand or visual, whatever you want to call.

00:11:48: We're talking about the number of companies that you've merged with and acquired over the last twenty years but have been your target for takeover at least once?

00:11:56: How do we manage to fend off

00:11:58: this?

00:11:58: In the end when people become a target of M&A in the end there is decision made by shareholders.

00:12:05: I think Hapagloid was our target back then And then the shareholders got together and basically decided that they did not want to do it.

00:12:15: Of course, the best guarantee you can give a company does not become takeover target is by just delivering steady progress over many years because this will hopefully give your shareholders also confidence in their best option actually stay with them instead of considering selling.

00:12:35: I presumably helped you have the support of The City Of Hamburg, and i think... ...I get the impression that Germany felt it's very important to have a homegrown shipping line as well.

00:12:44: Would That Be Fair?

00:12:46: I Think Harpark has always been important for Hamburg both For The Port but also As An Employer In The City.

00:12:52: And Yes!

00:12:53: I Think The Value Of That Has Been Recognised Certainly By The Cityof Hamburg.. ..And Of Course Also When You Look At Other Shipping Lines Then That'S Also From A Historical Perspective.

00:13:03: That'S Not So odd, even if today we look at some of the lines that are out there.

00:13:09: It's clear that there are people behind it who find this important and I think also very understandable.

00:13:15: And i think we can be grateful to the city of Hamburg and some of our shareholders have been supporting us over years because without their support an attempt like was in two thousand eight could've been successful.

00:13:27: At moment you're a bit of talk with sim so perhaps bring us up-to date on How much more scope is there for consolidation in the container shipping industry?

00:13:37: Because that has been so many over years.

00:13:40: There must be a limit, I would have thought to how many times you can have these mergers and acquisitions on consolidation

00:13:46: That's true.

00:13:46: On the other hand it's an industry that continues to grow.

00:13:50: And while we've had period from ten to two thousand twenty where growth was very modest If look back at last couple of year again seen that this industry grows quite fast.

00:14:04: I mean, in the end it's important to look at growth on the dominant legs because there drives how much capacity is required.

00:14:10: and when you look at last couple of years we've seen growth figures again high.

00:14:15: single digit numbers i think were close to ten percent in twenty four or eight percent also last year and this year are going about five percent.

00:14:24: so that means if your looking an industry even over two-and a half has probably grown with twenty, twenty five percent in terms of capacity that needs to be deployed.

00:14:35: And when you look at some parts of the world while there's still a lot growth potential I would not be surprised if we're gonna concede considerable further growth and this industry in the next one or two decades?

00:14:47: That will also mean that players in these industries need continue growing.

00:14:51: You can do it too ways as already mentioned either organically which is certainly a good way to grow, but I still think that there will be some further consolidation even if it never comes down three lines globally or something like this.

00:15:08: But at some stage anywhere between five and seven large global lines is not the picture which would very unlikely in fast forward of ten years.

00:15:20: But do you get any feedback from your customers that they feel their losing choice?

00:15:23: or are they losing the personal touch because everybody's got so big.

00:15:26: They no longer have the personal relationships with their trade managers and account managers?

00:15:32: I don't know, keep in mind it is a way we sell as typically direct and indirect We on one hand our customers but also a lot of other customers who serve through forwarders.

00:15:43: And also in those markets you typically see consolidation.

00:15:48: I mean if we look at the size of large forwarders, they've grown a lot as well over last one or two decades and when you look at our large direct customers many have grown.

00:15:58: so yes you'll see more scale in shipping but generally in other industries.

00:16:05: I don't think that the number of customers tells you all that much.

00:16:10: And let's also not forget everything is happening on digitization and AI front, where at least in some segments personal touch will over time become a bit less important even if it'll always remain relevant.

00:16:25: So we've been talking about consolidation between container lines but what about as you just mentioned forwarders or ports?

00:16:31: Is there another area scope for more merger acquisition activity?

00:16:35: i think we've seen if you look at the shipping that more or less all the large shipping lines have been very active on the terminal front.

00:16:43: We were probably a little bit late to that party but also we are building up our autumnal business and have been acquiring concessions in terminals over the years, of course when your look at a moscow if u look at them see cma they'd be very active in that field and they operate very large portfolios which makes sense.

00:17:02: yeah

00:17:04: I referred to Zim earlier.

00:17:05: Can you give us a little update on where things are with that acquisition?

00:17:08: Or is it a murder or an acquisition?

00:17:11: in the end, I think technically as an acquisition because we would do it It will be a cash transaction.

00:17:17: Yeah In practice.

00:17:18: now i'd like To think That its going to Be A Little bit more of a merger Because Its also a type Of company that Is i Think Quite Complementary to what We Do.

00:17:27: i think they have some Some great capabilities that We don't Have And I do believe that the unjoining forces could make us better together and also making it more robust going forward.

00:17:38: In terms of where we are, the merger agreement has been signed The shareholders have voted in favor.

00:17:45: now We go through all regulatory processes which as you know take time.

00:17:50: Based on this i think my current assessment would still be a timeline indicated when we signed Which was closer towards end of year is probably still the most likely scenario.

00:18:05: Well, perhaps we can talk about that on another occasion but thank you very much Rolf.

00:18:08: I think this has been really enlightening and look forward to talking to you next time!

00:18:12: Thank You, you're very welcome!