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Hapag-Lloyd's Ballin House headquarters in Hamburg, Germany

Hapag-Lloyd’s Ballin House headquarters in Hamburg, Germany

Germany’s Hapag-Lloyd and Chilean carrier Compania Sud Americana de Vapores (CSAV) stepped up efforts toward a merger with the signing of a nonbinding memorandum of understanding (MoU) that would form the world’s fourth largest container shipping line.

“The talks… about combining the container liner shipping activities of CSAV with Hapag-Lloyd are going into the next phase,” said Hamburg-based Hapag-Lloyd in an official statement on January 22.

It stressed that the MoU was not yet binding. “As the next step, the due diligence will take place, after which a binding contract could follow,” it added.

If it pushes through, the union will create the world’s fourth biggest box ship operation in capacity.

Hapag-Lloyd operates about 150 ships, deployed on the Asia-Europe, trans-Atlantic, and trans-Pacific routes. CSAV, a moderately sized player in South America, operates about 50 vessels. The combined entity will have a capacity of one million standard containers, with annual revenue placed at around US$12 billion.

CSAV, whose main shareholder is the Luksic family of Chile, is to have a 30 percent stake in the new company, with Hapag-Lloyd holding the rest.

The two companies started exploratory negotiations in December 2013 to find a way to surmount differences and join forces operationally.

Collaboration between the two makes sense operationally because there is little service duplication, so both carriers would benefit from improved economies of scale and geographic scope.

Hapag-Lloyd had been very vocal about its desire for expansion, even going as far as to say recently that it wanted to catch up with the top three box ship liners Maersk Line, Mediterranean Shipping Co., and CMA CGM, a move that would first entail leapfrogging over Cosco Container Lines and Evergreen Line.

CSAV had seemed to be equally desirous of a merger. Despite shedding much business in recent years and returning to its core strength in South America, CSAV continues to hemorrhage money, so it needs greater economies of scale. Moreover, it still has six 9,300-TEU vessels due for delivery in 2015, which will be surplus to requirements without expansion.

With the tie-up, Hapag-Lloyd will boost its network on Europe-Latin America and Latin America-Asia routes.

Hapag-Lloyd initially sought a merger with compatriot carrier Hamburg Sud, but talks fell through in March when the two could not agree on the terms and conditions.

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