MSC initiative to enter HHLA worthy of scrutiny

After the news broke that the government of the ‘city-state’ of Hamburg had reached an agreement with MSC about the sale of a minority share of HHLA to MSC, HHLA issued a press statement which read: ‘HHLA has been informed by its main shareholder, the City of Hamburg, that the latter has reached an agreement with Mediterranean Shipping Company S.A. (MSC) on a strategic participation in HHLA’.

This statement and further information provided by the city government indeed points out that this was truly a government initiative, with confidential negotiations between the Hamburg government and MSC. And while perhaps to some that comes across as perfectly legitimate, it strikes me as a rather strange process. A couple of questions.

First, where was Hamburg Port Authority? This corporatised entity acts as the developer of Hamburg’s port complex. The shipping lines and the terminals are its customers. So, you would think they would be best placed to lead a process to strengthen/develop a partnership with a shipping line. Yet their role, apparently, was very limited.

Second, how did the politically elected entrepreneurial dealmakers know they were getting a good and indeed the best possible deal? Was there a compelling reason not to work with a competitive bidding process? Such a competitive bidding process could have incorporated the effects on Hamburg’s port (in terms of volumes, investments, sustainability and so on). It would have given other companies a chance to place a competing bid. One company that immediately comes to mind is Hapag Lloyd, the shipping line with the largest volumes in Hamburg. But other candidates also could have been relevant. In addition, competitive bidding is an obvious choice to get the highest price for the shares of HHLA.

Third, how certain are MSC’s promises to turn Hamburg into a ‘global hub’? I am sure additional volumes will come to Hamburg, but it is good to keep in mind that MSC reached an agreement with ECT in Rotterdam for the development of a seven million TEU terminal in Rotterdam, while MSC already has a strong hub in Antwerp and a stake in Bremerhaven. There is a risk of overly optimistic views on the effects of MSC’s stake. In addition, there may be ‘negatives’ too, such as reactions of competing shipping lines – which in the case of Hapag Lloyd has emerged – and the more complex challenge of HHLA to continue to position itself and especially its inland logistics branch METRANS, which has developed a very strong rail network, as a ‘neutral’ service provider.

All of this is not to say that the deal is a bad deal – there are far too many unknowns for that – but that the process of selecting partner has been unusual and deserves scrutiny.