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Port Report: Panalpina Makes Own Consolidation Move With Approach To Agility Group

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Port Report: Panalpina Makes Own Consolidation Move With Approach To Agility Group

Panalpina is looking to consolidate, and not be consolidated, as it says it wants to combine its logistics business with that of another company. Meanwhile putative suitor DSV continues to woo the Swiss freight forwarder with a revised offer.

Panalpina announced this morning that it was in talks with Kuwait-based Agility Group for "potential strategic opportunities with regard to their respective logistics businesses."

In the wake of DSV's unsolicited offer, Panalpina's Chief Executive Stefan Karlen said the company itself was looking to consolidate the fragmented logistics and forwarding industry.  

Agility's logistics revenue primarily comes from  inventory management, order fulfilment and transportation services, along with ocean and air freight forwarding. Logistics and forwarding revenue for the company were up 13 percent in the first nine months of 2018 to $3.28 billion with group-wide net income up 21 percent to $237 million.

Among the company's biggest customers was the U.S. military. Agility Group received $5.4 billion from 2008 to 2010 for providing cost-plus-fixed-fee contract services to the Coalition Provisional Authority, the U.S.-led group in charge of Iraq. But the company is in legal disputes with the U.S. government over $144 million of those contract awards.

But DSV said it remains in the hunt for Panalpina raising its offer for Panalpina 4 percent to $179 per share. The higher offer comes after investment management firm Artisan Partners, which holds 12 percent of Panalpina, told the company's board that DSV's offer deserves "serious and impartial consideration."

The combination of DSV and Panalpina would make it the number one air freight forwarder at 1.3 million tons and the number four ocean freight forwarder. DSV saw cumulative ocean freight volume hit one million containers in the third quarter, up four percent versus market growth of three percent. Panalpina handled just over 1.1 million containers in the same amount of time, but that volume was down two percent.

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Korean container ship line faces reckoning

South Korea's Hyundai Merchant Marine faces a tough decision in the next month as its largest shareholder put a March deadline on restructuring the ocean carrier.

The last of South Korea's container line operators, HMM, reported 2018 losses of $709 million for 2018, its fourth money-losing year.

The ocean carrier has reported total losses of $2.8 billion since 2015 at current exchange rates. Revenue was up 4 percent to $4.6 billion for 2018 thanks to higher utilization of its ship and serving more routes, but higher fuel costs and weak freight rates still hurt results.

Close to half of Hyundai's container business comes from the heavily supplied Asia-to-Europe and intra-Asia trade lanes, which are seeing depressed rates due to the increasing capacity of larger ships. Freightos' China-to-North Europe freight rate index remains relatively flat with last year at $1,680 per forty-foot equivalent (FFE) container (SONAR: FBX.CNER).

Those trade lanes will be even more crowded thanks to an order Hyundai made for 20 ultra-large container ships, bringing its total fleet size to around one million twenty-foot equivalent (TEU). Hyundai is additionally exposed to other weak shipping markets through its ownership of dry bulk ships and tankers.

In addition to not being able to operate its ships profitably, the company is laboring under a growing debt burden with $2.2 billion in long-term debt, with another $883 million in new debt due to the sale of bonds last year to its largest shareholder Korea Development Bank.

But in agreeing to the bond deal, KDB has put Hyundai Merchant Marine on notice that it has to come up with a restructuring plan to rejigger its cost structure so it will not need ongoing bailouts. In addition to losing government support, Hyundai Merchant Marine may face the loss of its space sharing agreements with the 2M Alliance, comprised of Maersk and MSC.

With the sharing agreements, Hyundai Merchant Marine and another operator Zim add about 22,000 teu in weekly capacity from Asia to the U.S. West Coast on top of the approximately 45,000 teu in weekly capacity that 2M has in the trans-Pacific.  

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