After being one of the main drivers behind the latest wave of consolidation, German carrier Hapag-Lloyd now wants to focus on customer service instead of growing larger.
Digitalisation, customer service and cost control are the key concerns as Hapag-Lloyd sets its sights on the next five years.
HAPAG-Lloyd, the Hamburg-based container line, has set out a five-year plan that will see it focus on customer service rather than further acquisitions.
“We do not see any further consolidation among the big six [carriers], only among the smaller players,” chief executive Rolf Habben Jansen told analysts at the company’s first capital markets day.
He added that the marginal returns achieved from growing scale diminished after a certain point.
“Despite adding a lot of capacity after merging with CSAV and United Arab Shipping Co, and more with UASC than with CSAV, the amount of cost reduction was less with UASC than we achieved with CSAV,” said Mr Habben Jansen. “If we were twice the size, there would only be a 2% to 4% reduction in unit costs. There are better ways other than mega mergers.”
Hapag-Lloyd was confident it now had sufficient scale, despite being only the sixth-largest carrier by capacity.
“Our results illustrate we have a scale where we can compete,” he said. “Scale is only relevant in markets where you compete. Therefore, it is more important that we have a 20% market share on the trans-Atlantic than a 1% share on intra-Asia.”
After years of driving consolidation and more than doubling in size, the German carrier would now focus on improving the quality of its services.
“We want to be number one for quality,” said Mr Habben Jansen. “The industry has not invested in delivering value for customers. It means fundamental changes to the way we do business.”
Hapag-Lloyd would remain a global operator, aiming for a market share of around 10%, compared with its current 9%.
On the cargo side, Hapag-Lloyd will be seeking to attract the 50% of customers that put quality of service and value above simple least-cost pricing.
“There is an argument that container shipping is a commodity, but if that were the case there would not be a 10% to 20% difference between the lowest and highest prices paid for a container on the same voyage.”
But on the operator’s side, it would require strict discipline with costs.
“You need cost management to earn the right to continue to play,” said Mr Habben Jansen.
To achieve this, the company plans to focus on selected, high-value markets and segments, and to boost its inland capacities.
“A third of the 12m teu we handle a year have an inland element so if we can improve that we can provide better service for customers,” he said. Digitisation and automation would underline this.
“As an organisation we have become a lot more agile,” said Mr Habben Jansen.. “We are not the biggest, so we have to become smarter and faster.”
He pointed to the success of Hapag-Lloyd’s recently launched instant booking system, which was already taking 13,000 teu of bookings a week.
The company aims to have 15% of overall volumes booked online by 2023.
Other elements of cost control would include optimising and rationalising its network, which had grown unwieldy following the mergers.
“We will optimise our feeder service, improve the vessel and fleet composition and optimise transhipment and equipment flows,” said Mr Habben Jansen. “No one pays us a dime for repositioning empties.”
Combined cost cutting efforts should realise $350 to $400m in the next three years alone, at a time when the market should grow at a conservative estimate of 3% to 4%, giving a reasonably positive outlook, Mr Habben Jansen added.