Shipping - Controversial MSC deal - citizens will probably decide later
The Hamburg Parliament must give its final approval to the controversial deal between the world's largest shipping company MSC and HHLA, the Hamburg Hafen und Logistik AG, at the harbor logistics company. The red-green coalition would like to approve the plans in the last session before the summer break on Wednesday. However, CDU and the Left have announced that they will oppose the planned voting in the first and second readings in the last session before the summer holidays. Both parties hold the necessary five votes. The opposition could delay the final decision beyond the summer break, but not prevent it. However, there is no doubt about the Hamburg Parliament's approval of the at least 40-year contract, given the red-green two-thirds majority. But what is this deal about? A brief overview:
What is HHLA?
The Hamburger Hafen und Logistik AG (HHLA) is not just any cargo handling company. The company that evolved from the Hamburg Free Port Warehouse Company (HFLG), founded in 1885, is the heart of the Hamburg Port. Approximately 5.9 million standard containers (TEU) were handled at its three container terminals - Tollerort, Altenwerder, and Burchardkai - in the previous year. This corresponds to about 77% of Hamburg's total container throughput of approximately 7.7 million TEU. In addition, HHLA is active in terminals in the Ukrainian port of Odessa, the Italian port of Trieste, and the Estonian port of Muuga.
At least as important as the terminals for HHLA are its companies for transporting containers on the road and rail. For rail transport, HHLA has its subsidiary Metrans, which transported approximately 1.4 million TEU last year, mainly to various countries in Central and Southeastern Europe. Metrans also operates in other ports.
A curiosity and a historical quirk is HHLA's engagement in the real estate sector. As its predecessor company, the HFLG, developed and built the Speicherstadt, the largest warehouse complex in the world at the time, HHLA is still responsible for the UNESCO World Heritage Site and has its headquarters there. In addition, HHLA manages real estate around the popular tourist attraction, the Hamburg Fish Market.
How is HHLA doing?
The situation is difficult. As an internationally oriented company, the crises of the world often affect HHLA directly and harshly. Last year, with a turnover of around 1.45 billion Euro, there was only a profit of 20 million Euro left. Container handling decreased by 7.5%, container transport by 5.4%. This confirmed a trend since the 2008 financial crisis that has been more or less persistent. In the first quarter of this year, HHLA even reported a loss. With a turnover of 363.6 million Euro, it recorded a net loss of 1.1 million Euro.
Major shifts are coming among large shipping companies, such as Maersk and Hapag-Lloyd, which are planning to primarily call at ports where they own or control terminals - in Germany, for example, Bremerhaven and Wilhelmshaven. Hapag- Lloyd has already announced a cargo decline of ten percent in the Hamburg Port. Correspondingly, the HHLA stock price, which has been publicly traded since 2007, has developed from 59 Euros per share to around eleven to twelve Euros. The HHLA urgently needs money for the modernization and automation of its terminals.
What should be done?
Hamburg's red-green Senate - the city held approximately 70 percent of the shares, with the rest in scattered ownership - decided on a surprising move. In the early morning of September 13, 2023, Mayor Peter Tschentscher, Senator for Economics Melanie Leonhard, and Finance Senator Andreas Dressel (all SPD) unexpectedly appeared before the press and announced that Mediterranean Shipping Company (MSC) would join HHLA and own 49.9 percent of the company. The city would reduce its stake to 50.1 percent. Tschentscher spoke of a groundbreaking transaction that would lead to a strategic partnership between the city and the Geneva-based MSC, the world's largest shipping company, owned by the Italian Aponte shipping family. "This can give our entire maritime economy the boost it needs in difficult times."
What exactly is agreed upon?
For nearly half of the shares, MSC will increase its cargo volume at HHLA terminals from 2025 and raise it to one million TEU per year by 2031. In addition, they will build a new Germany headquarters in Hafencity, where MSC Cruises will also move in; the workforce in Hamburg will more than double with an additional 700 jobs. MSC and the city also plan to increase HHLA's equity capital by 450 million Euros. Finance Senator Dressel stated that in the negotiations for the over-forty-year contract, two points had been paramount: "We must retain the majority and we must maintain co-determination." Both have been achieved. "As a city, we also still have the right to propose CEO and supervisory board positions."
What happened after the Senate's announcement?
A storm of outrage erupted. Harbor workers and harbor workers took to the streets multiple times, expressing their anger in angry demonstrations, and even came close to a wild strike. Labor representatives, the Verdi union, and even experts warned in expert hearings and a public hearing of the Hamburg Senate about a "historic mistake" and almost begged the representatives not to "lead us into the catastrophe." According to the press release, "notice of termination due to operational reasons, significant changes in employment, or leaving the collective bargaining agreements" are "not permitted before five years (...) but rather after." Critics are convinced that this is not the case.
Mostly, MSC's business conduct is under scrutiny. MSC is not known for engagement in matters of co-determination. In one of its subsidiaries in Hamburg, they even fired a former works council chairman. Or MSC CEO Soren Toft himself, who is not an unknown figure in Hamburg: In 2017, as CEO of the world's second largest shipping company Maersk after the acquisition of Hamburg Sud, he promised that this company would remain a "commercially independent brand." In 2021, it celebrated its 150-year anniversary, but since 2023, its name no longer exists.
Where did the criticism over the MSC deal ignite?
It was over the price. Many critics are convinced that the negotiated price of €16.75 per share and approximately €233 million for the city-owned HHLA shares is far too low. The former president of the Hamburg Business Association, Gunter Bonz, told the "Hamburger Abendblatt": "Congratulations to MSC. The company has done everything right and pulled the senate over the table by the strings." HHLA is worth much more than that, just Metrans alone is worth two billion Euros. The harbor political spokesperson of the CDU parliamentary group, Goetz Wiese, has already filed a complaint with the European Commission. "Secret negotiations, no tender, no valuation according to recognized principles of business valuers, independent experts were not allowed to see the contract documents," he justified his actions.
Who is MSC anyway?
It's hard to answer that. Known facts: MSC is the largest container shipping company in the world. Its container division includes 760 ships, which call at 520 ports in 155 countries. Through its subsidiary TiL, the company is involved in around 70 terminals worldwide. In Bremerhaven, MSC is part of a joint venture with Eurogate with a 50% stake in MSC Gate Bremerhaven. That was essentially it in terms of official information. MSC CEO Toft already said: "We only provide the information that we have to." - anything else was not mentioned. The company's revenue and profit remain confidential. Allegedly, MSC generated €86 billion in revenue and €36 billion in profit in 2022, which analysts at least consider plausible - the profit alone would almost equal the city-state of Hamburg's budget for 2023/24.
- Andreas Dressel, the Financial Senator of Hamburg, played a key role in the negotiations with MSC, ensuring that Hamburg retained the majority stake and maintained co-determination in HHLA.
- Peter Tschentscher, the Mayor of Hamburg, announced that Mediterranean Shipping Company (MSC) would join HHLA and own 49.9% of the company, a decision criticized by some as a potential historic mistake.
- The agreement between HHLA and MSC includes MSC increasing its cargo volume at HHLA terminals and building a new Germany headquarters in Hafencity, leading to an increase of over 700 jobs in Hamburg.
- The opposition in the Hamburg Parliament, including the CDU and the Left, announced their intention to oppose the voting in the first and second readings, potentially delaying the approval beyond the summer break.
- The CTU and the Left, who hold the necessary five votes, could present a challenge to the red-green coalition's two-thirds majority in the Hamburg Parliament and potentially delay the deal's approval.
- Shipping companies like MSC and Hapag-Lloyd are planning to call at ports where they own or control terminals, leading to concerns about job losses and the future of the Port of Hamburg.
- The Port of Hamburg handles approximately 5.9 million standard containers (TEU) annually, with HHLA managing three container terminals, Tollerort, Altenwerder, and Burchardkai, accounting for around 77% of Hamburg's total container throughput.
- MSC is the world's largest shipping company, operating over 760 ships that call at 520 ports in 155 countries, and is also involved in around 70 terminals worldwide.
- HHLA, which evolved from the Hamburg Free Port Warehouse Company (HFLG) founded in 1885, is responsible for the Speicherstadt, the largest warehouse complex in the world and a UNESCO World Heritage Site.
- The opposition in the Hamburg Parliament's criticism of the deal and the low price paid for HHLA shares has led to calls for an investigation and a complaint to the European Commission, citing secret negotiations and a lack of transparency in the deal.
