Hapag-Lloyd is to merge with UASC. The news follows the Dubai-headquartered carrier being excluded from the new Ocean Alliance announced yesterday.

The merger was first reported online by German monthly business magazine Manager Magazin yesterday, saying “secret negotiations between the two sides are close to a conclusion”.

Hapag-Lloyd has a fleet capacity of around 920,000 teu, ranking it the sixth-largest global carrier, while UASC operates approximately 550,000 teu, ranking it tenth. Their combined fleet will propel the new entity fifth in the rankings, just behind Cosco.

It is understood that the Arabian owners of UASC will receive a 28% stake in Hapag-Lloyd, and that one of the key conditions of the deal was that the HQ of the merged carrier would be in Hamburg.

UASC does not report its financials, but it is understood that the carrier suffered a heavy loss last year, rumoured to be around $500m, as the Asia-Europe market collapsed.

Hapag-Lloyd also finished 2015 trading in the red, but due to a $176m surplus achieved in the first half, posted a full-year net profit of $126m – its first since 2010.

The merger would provide a massive boost to  the new Hapag-Lloyd’s ultra-large vessel portfolio from UASC’s six 18,800 teu and seven 15,000 teu vessels. Currently the largest ships that Hapag-Lloyd operates are its 10  Hamburg Express class, at 13,100 teu.

The absence of the mega-ships needed to compete with Maersk, MSC and CMA CGM was mentioned by Hapag-Lloyd’s chief executive, Rolf Habben Jansen in his 2015 results analysts’ conference last month.

A previous long-running attempted merger by Hapag-Lloyd – with local rival Hamburg Sud – collapsed in March 2013, with some degree of bitterness. A statement said: “Both owners could not reach agreement on a fair structure for the transaction.”

Ironically, a merger between Hapag-Lloyd and UASC could bring the German compatriots closer again, since UASC has a global co-operation agreement, signed in 2014, with Hamburg Sud, which allows the latter entry into the Asia-North Europe and Asia-US trades and UASC to enter the Europe-South America and Asia South America markets, through slot exchanges.

The Loadstar understands that the agreement requires each partner to pay a minimum rate per teu and guarantee the allocation of slots taken on each trade.

In the case of Asia-North Europe, this deal was described to The Loadstar (off-record) as a “disaster”, by one senior executive of Hamburg Sud, and UASC will have fared little better on the South American trades which have also suffered a collapse.

Hapag-Lloyd’s stock spiked 12% this morning on the Frankfurt bourse on the reports of the merger, to €18.40, although this is still below last November’s IPO float price of €20 per share.

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