- Determination of MSC entry relies on citizenship status at HHLA
Today, the Hamburg Parliament is set to make a final decision on the contentious entry of the world's biggest shipping company, MSC, into the Hamburg port logistics company, HHLA. Initially scheduled for the last session before the summer break, the opposition's refusal to hold a second reading delayed the deal to the first session post-summer break. With a two-thirds majority of the SPD and Greens, it's clear that the decision will align with the Senate's wishes. However, what's the big deal that's expected to continue for at least 40 years? Let's dig in:
Who is HHLA?
The Hamburg Port and Logistics AG, or HHLA, isn't your run-of-the-mill cargo handling company. Established from the Hamburg Free Port Warehouse Company, which was founded in 1885, this company is the hub of the port. In 2021, approximately 5.9 million standard containers (TEU) were handled at its three container terminals - Tollerort, Altenwerder, and Burchardkai. This corresponds to around 77% of the total handling of about 7.7 million TEU in the Hamburg port. Additionally, HHLA, with its nearly 6,800 employees, also operates at terminals in other ports, such as Odessa in Ukraine, Trieste in Italy, and Muuga in Estonia.
Besides its terminals, HHLA's companies for road and rail container transportation are equally significant. For instance, HHLA's subsidiary Metrans transported around 1.4 million TEU, primarily to various Central and Eastern European countries, in 2021. This makes up more than half of the around 2.5 million TEU moved by rail in the Hamburg port, with Metrans also being active in other ports.
Thanks to its predecessor company's development and construction of the Speicherstadt, the world's largest warehouse complex at the time, HHLA is also responsible for the UNESCO World Heritage site. Its corporate headquarters are still situated there. Furthermore, HHLA manages real estate around the famous fish market, which is popular among tourists.
How is HHLA faring?
The situation is challenging. As an internationally oriented company, HHLA often feels the direct impact of global crises. Despite a turnover of around 1.45 billion euros in 2021, they only managed to make a profit of 20 million euros. Container handling decreased by 7.5%, and container transport by 5.4%, confirming a trend that's been ongoing since the 2008 global financial crisis, unlike competing ports like Rotterdam and Antwerp. In the first quarter of this year, HHLA even dipped into the red, but managed to recover in the second quarter.
Moreover, changes among major shipping companies, like Maersk and Hapag-Lloyd, who are joining forces in the "Gemini Cooperation" and prefer to call at ports where they own or control terminals in the future, pose a threat. Consequently, HHLA's share price, which has been listed on the stock exchange since 2007, has seen a significant drop. It started at 59 euros per share and is currently trading around 16 to 17 euros. Despite this, HHLA urgently needs funds for the modernization and automation of its terminals.
In an unexpected move, Hamburg's red-green senate - which previously held around 70 percent of the shares, with the rest in free float - decided on a drastic intervention. On the morning of September 13, 2023, Mayor Peter Tschentscher, Economics Senator Melanie Leonhard, and Finance Senator Andreas Dressel (all SPD) unexpectedly addressed the press, announcing that the world's largest shipping company, MSC, would invest in HHLA and own 49.9 percent of the company. The city would hold 50.1 percent. Tschentscher described it as a groundbreaking transaction that would lead to a strategic partnership between the city and the Geneva-based MSC Group of the Italian Aponte family. "This can provide the boost our entire maritime economy needs in challenging times."
What was agreed upon?
For nearly half of the shares, MSC will increase its cargo volume at HHLA terminals from 2025 and reach one million TEU per year by 2031. Furthermore, they will build a new German headquarters in the Hafencity, which will also house MSC Cruises, increasing the number of employees in Hamburg by 700. Additionally, MSC and the city aim to increase HHLA's equity capital by 450 million euros. Finance Senator Dressel explained that the two main points of the negotiations for the contract lasting at least 40 years were: "We must retain the majority, and we must ensure co-determination." Both conditions have been met. "As a city, we will also continue to have the right to propose candidates for the CEO and supervisory board positions."
What transpired after the senate's announcement?
A fury of protests ensued. Port workers hit the streets several times, venting their discontent through angry rallies – most recently last weekend – even hinting at an unofficial strike. Representative bodies, the union Verdi, and experts cautioned in formal meetings and a Hamburg Parliament hearing of a potential blunder and implored the MPs: "Avoid leading us towards catastrophe." The text reveals that terminations, major workforce reductions, or withdrawals from employer organizations "won't be regarded as feasible within the upcoming five years." However, critics predict a shift in this stance later on.
Principally, MSC's conduct is under scrutiny. It's no secret that MSC lacks a reputation for collective bargaining, as exemplified by its dismissal of a former works council chair at a Hamburg subsidiary – a move that was later vetoed by the labor court, as per Verdi. Or consider MSC CEO Soren Toft, well-known in Hamburg: In 2017, as CEO of the world's second-largest shipping company, Maersk, he assured that Hamburg Süd would continue as a "commercially autonomous brand" following its acquisition. The company celebrated its 150th anniversary in 2021, but the name ceased to exist from 2023 onwards.
Where was the MSC deal's criticism sparked?
Numerous critics contend that the agreed-upon price of 16.75 euros per share, amounting to approximately 233 million euros, for the municipal HHLA shares is significantly undervalued. Former president of the Association of Hamburg Harbor, Gunter Bonz, remarked to "Hamburger Abendblatt": "Congratulations to MSC. The company has played its cards right and fleeced the Senate." HHLA carries a much higher worth, with Metrans alone valued at two billion euros. The spokesperson for the CDU parliamentary group's harbor policy, Goetz Wiese, has already lodged a complaint with the European Commission. "Undisclosed negotiations, lack of bidding, evaluation devoid of recognized financial principles, and independent experts were barred from perusing the contract documents," he justified his actions.
Who is MSC?
It's uncertain. What's known is: MSC is the world's largest container shipping company. Its container division encompasses 760 vessels serving 520 ports in 155 nations. Its subsidiary TiL is involved in around 70 terminals globally. In Bremerhaven, MSC is part of a joint venture with Eurogate, holding a 50% stake in MSC Gate Bremerhaven. Basically, those are all the official details. MSC CEO Toft has already stated: "We only provide the information we're obliged to share." Confidentiality surrounds MSC's annual revenue and profits, for instance. It's alleged that MSC reported around 86 billion euros in revenue and 36 billion euros in profits in 2022, a profit margin that almost matches the double budget of the Hanseatic City of Hamburg for 2023/24.
The Commission, in its capacity to enforce this Regulation, may need to evaluate potential implications of the partnership between MSC and HHLA, given that the Commission shall adopt implementing acts laying down the rules for the application of this Regulation. Despite the opposition's delay, the agreement between MSC and HHLA, which grants MSC a significant share of HHLA, is expected to last at least 40 years.
The implementation of this partnership might involve scrutiny from the European Commission due to competition law, considering that the Commission has the authority to investigate and impose fines for anticompetitive practices if necessary.
