The view across the pond
The Chilean shipping company CSAV is currently making headlines due to the potential merger of its container business with Hapag-Lloyd. This is a good enough reason to take a rather more detailed look at the history of South America’s largest container line.
Compañía Sudamericana de Vapores (CSAV) has a long tradition. Founded in 1872 as a result of the merger between Compañía Chilena de Vapores and Compañía Nacional de Vapores, the company has been listed on the Chilean stock exchange since 1893.
Whilst the shipping line initially concentrated on coastal shipping and the transportation of fruit and minerals from its native country, the market conditions fundamentally changed from 1914 onwards: with the outbreak of the First World War, the ships of its hitherto largest competitor, Pacific Steam Navigation, were commandeered for the war effort. And with the opening of the Panama Canal in the same year, nothing was ultimately ever the same again. Ships were now able to forego the long and dangerous voyage around Cape Horn in order to serve the east coast of South and North America. However, this development created increased international competition. New providers flooded the market, particularly from the USA. The market conditions deteriorated further, and CSAV reported heavy losses at the beginning of the 1920s. At that time, assistance came from the Chilean government. However, the start of the Great Depression in 1929 brought renewed difficulties for the shipping line. As sodium nitrate and copper, two of Chile’s most important export goods, generated considerably less revenue for the country, imports from overseas also fell. The market finally recovered during the mid-1930s, and CSAV gradually expanded its services towards the Far East, Japan and South-East Asia.
Focus on core areas
The shipping line sought to achieve global network coverage by 2011 by acquiring various companies. So the Brazilian shipping line, Libra, for example, has belonged to CSAV since 1999. And Montemar Marítim, a company from Uruguay, has also been part of the CSAV Group since 2003, thereby ensuring coverage of the east coast of South America. Since 2000, the services of Norasia have also been integrated into the group, thereby allowing it to consolidate its east–west routes.
Since 2011, the Luksic family, one of the richest families in Chile, has owned a majority shareholding in the shipping line. Following a capital increase in February 2012, it currently owns 45.9% of the shares via its holding company, Quiñenco. Quiñenco is one of the largest conglomerates in Chile. In addition to CSAV for example, the company also controls Banco de Chile, the beverage producer, CCU, the oil company Shell’s Chilean licensee, Enex, and the packaging manufacturer, Madeco.
Loss of market share
At 1.5%, CSAV’s share of tonnage is currently ranked number 20 among the world’s 30 largest scheduled shipping lines. The line operates a fleet of 52 units with a total capacity of 260,050 teu, including 15 ships which it owns itself. In addition, its order book forecasts an additional 73,700 teu, distributed over eight new ships.
Its prospects for the future are not too rosy, however. CSAV’s scheduled services are not profitable. According to calculations by the analyst Alphaliner, Quiñenco has invested approximately USD 1,157 billion (EUR 842 million) in CSAV and its terminal business, SAAM, since 2011. However, according to Alphaliner, the value of the shares prior to the announcement of a potential merger with Hapag-Lloyd (see box) was only approximately USD 699 million (EUR 508 million). Alphaliner therefore calculates that Quiñenco has made a negative return of 40% over the last three years.
In addition, CSAV is steadily losing market share. This currently lies at 9% in its core region of Latin America, but was still at 13% in 2011, according to Alphaliner. A fundamental change therefore took place in 2009: whilst the shipping line continues to operate on five continents, its focus is once again on its American activities. A merger with Hapag-Lloyd, whose strengths lie in traffic between the Far East and Europe, could therefore be advantageous. What is certain, however, is that a transatlantic link between these two traditional companies would break entirely new ground.
Cooperation with Hapag-Lloyd?
On 22 January CSAV and Hapag-Lloyd signed a non-binding declaration of intent to merge their container activities. The negotiations are currently in the due diligence phase. The two companies’ combined fleet would comprise approximately 200 vessels. CSAV’s share would be amount to approximately 25%.
The cooperation would see CSAV and Hapag-Lloyd advance to fourth place in the global rankings, with 5.6% (approximately 1 million teu) of the global tonnage capacity. CSAV recently announced that it was planning a further capital increase ahead of the potential merger (see ITJ 09-10/2014, page 14).