Supply Chain Matters has published two commentaries dating back to December, regarding reports of merger talks between two high profile ocean container shipping lines, German based Hapag-Lloyd and Chile based CSAV. These talks had the potential to create the fourth largest global container shipping line by such a consolidation.  In our late-January posting we cited a Wall Street Journal report indicating that a Memorandum of Understanding had been reached and that the merger deal was expected to be signed in February.

Today, various global media outlets are reporting that this merger deal is signed, and the terms are essentially unchanged from the Memorandum of Understanding reached in January. The deal calls for Hapag-Lloyd to control 34 percent of the merged entity after two added capital infusions totaling approximately $1 billion. According to a published Reuters report, this business combination is not completely a done deal because it is subject to approval by the City of Hamburg’s Senate and has stipulation that if more than 5 percent of CSAV shareholders exercise withdrawal rights by April 20, the deal will be annulled. According to a separate report published by the Wall Street Journal, the combined entity will have a transport capacity of one million TEU’s and 200 ships.

Business media and Supply Chain Matters have both noted that this merger is a direct result of the announced formation of the P3 Network involving the top three global ocean container carriers, which has already gained U.S. maritime regulatory approval and awaits similar approval from both China and European Union regulators.

We have also featured research and commentary noting that this ongoing consolidation of global ocean container networks has an impact on various industry supply chains. Succinct evidence on the financial impact to shippers was noted in a posting featured by The Loadstar, reporting that global premium beverages provider Diageo revealed that container shipping line unreliability has cost that firm upwards of €3 million in extra inventory costs so far this year. According to this blog posting, a Diageo customer services and logistics executive noted during an industry conference presentation that current reliability of eastbound Europe to Asia container services is so poor that the beverage provider has had to increase safety stock inventories by 34 percent to maintain customer service level needs.

Supply Chain Matters remains of the belief that there are many other industry supply chain service and industry costs being precipitated by the current conditions of excess capacity and need for shipping line profitability. 

Today’s announcement concerning the formation of a consolidated fourth network carrier will more than likely lead to additional industry announcements in the weeks and months to come.  Meanwhile, industry supply chains depending on cost control initiatives achieved through increased ocean container inter-modal methods will continue to be disappointed by the ongoing economic fallout from such strategies.