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Maersk to acquire Hamburg-Sud and reinforce its presence on the Latin America routes

After months of speculation on Maersk acquiring K-Line and teaming up (as member of the 2M Alliance) with Hyundai Merchant Marine (HMM), at the beginning of December the Danish line surprised even the most informed in the container shipping industry by announcing its intention to purchase Hamburg Sud. Although this is not expected to affect significantly Maersk’s current market share of circa 15% (we estimate Hamburg Sud to account for some 3% of the global fleet), it will undoubtedly reinforce Maersk’s presence on the Latin American trade lanes.

Based on our latest Containership Databank, we estimate that the proportion of Hamburg Sud’s fleet on trade lanes passing through Latin America is 73% of their total fleet, with North Europe & Mediterranean – Latin America accounting for some 26%.

Analysing the trade flows for 2016, it is a mixed picture for Latin America, with some trade lanes showing more encouraging performances than others.

The volume of cargo projected to be traded by Latin America in 2016 (excluding intra-regional flows) is expected to remain substantially flat compared to last year, with imports down by approximately 2% and exports up by some 2.6%. We estimate that the decline in Latin America’s imports is mainly due to a contraction in cargo arriving from the Far East, down by some 3% compared to 2015. Not surprisingly, the major country expected to experience a reduction in volume moved to Latin America is China, down by some 3%. A large contraction of 13% is anticipated for Japan’s exports to Latin America. For both China and Japan, Brazil is the partner country in Latin America for which we expect the biggest decline.

However, if volumes from the Far East to Latin America are not expected to show positive results in 2016, some more encouraging performances are expected to been seen on the North Europe – Latin America trade lane. Based on our latest forecasts, we expect Latin America’s imports from this world region to grow by some 1% in 2016 and by an annual rate in the region of 4% in the following years.

Based on our most up-to-date trade data (which includes actual data up to and including 2016Q3), we forecast Latin America to grow by a CAGR of some 5% between 2016-2020, which is above the 4% annual growth forecast for global trade (excluding intra-regional flows). Far East, Europe and North America are all expected to grow by approximately 4% during the same period.

The following chart shows our estimates and forecasts for Latin America’s global trade (excluding intra-regional flows) by Latin American region as well as for the whole of Latin America. The maritime region to report the highest growth in percentage terms between 2010 and 2015 is South America West Coast, estimated to have grown at a CAGR of circa 5% and forecast to grow at a CAGR of more than 5% between 2016 and 2020.

Figure 1: Latin America - global trade (excluding intra-regional flows), Index 2000=100 Source: MDS Transmodal, World Cargo Database, December 2016

The following chart emphasises the positive results reported by Latin American ports between 2010 and 2015, with the ports to experience the highest growth in percentage terms during this period being those in Ecuador, Colombia, Mexico and Peru, growing at a CAGR in the region of 8%. With APM Terminals well located on both East and West Coasts of Latin America, Maersk’s latest acquisition will certainly assist the shipping line to retain a central role in this market.

Figure 2: Latin America Port Throughput, mTEU Source: MDS Transmodal, Port Throughput Database, December 2016

This acquisition, however, is not without risks, as Maersk may be forced to put its Brazilian subsidiary, Mercosul Line, up for sale. Hamburg Sud, has a South American subsidiary, Alianca Navegacao, which, together with Mercosul Line, could control more than 45% of the South America East Coast market. Since the Brazilian Regulatory Authority is unlikely to allow this to happen, what is a potential risk for Maersk could then become an opportunity for other shipping lines. Very likely the first lines that could express their interest if such an opportunity arises would be CMA-CGM and MSC.  CMA-CGM has already shown its interest in this market in the past and MSC has indicated a willingness to re-establish its presence in this maritime region. Once again, if this event does materialise, it will be a game for the biggest players.