- Obtaining Citizenship Grants Permission for MSC's Entry at HHLA
The Hamburg Parliament, serving as the top authority in the Hanseatic city, has authorized the controversial entrance of mega-shipping corporation MSC into the port logistics firm HHLA's business. The red-green coalition successfully pushed this deal forward through its two-thirds majority in parliament, while CDU, Left, AfD, and FDP collectively voted against it. Now, the EU Commission remains as the sole entity required to give its approval. But what's the fuss all about, continuing for at least 40 years? Let's dive into the details:
Who is HHLA?
HHLA isn't your average cargo handling company. It originated from Hamburg Free Port Warehouse Company, established in 1885, and serves as the backbone of the port. Last year, the company handled approximately 5.9 million TEUs (twenty-foot equivalent units) at its three primary container terminals—Tollerort, Altenwerder, and Burchardkai. As a result, around 77% of the total throughput of approximately 7.7 million TEUs in the Hamburg port was processed. Beyond terminals, HHLA is active in the transportation of containers via road and rail as well.
For rail transport, HHLA's subsidiary Metrans transported around 1.4 million TEUs in 2022, primarily to various Central and Southeast European countries. This equates to more than half of the around 2.5 million TEUs moved by rail in the Hamburg port, with Metrans also operating in various other ports.
Besides terminals, real estate holdings are an essential aspect of HHLA's portfolio. As the developer and builder of the Speicherstadt, the world's largest warehouse complex at its time, HHLA remains responsible for the UNESCO World Heritage site today. The company also manages real estate around the famous fish market in Hamburg.
HHLA's Performance
In a nutshell, things aren't going too swimmingly for HHLA. As a global business, it's frequently impacted by international crises. Last year, it brought in approximately 1.45 billion euros, resulting in a profit of merely 20 million euros. Container handling decreased by 7.5%, and container transport by 5.4%. This negative trend began after the 2008 global financial crisis and hasn't improved. HHLA ended the first quarter of 2023 in the red but managed to turn a profit in the second quarter.
Additionally, significant changes among major shipping companies are causing waves. Companies like Hapag-Lloyd are seeking closer relationships with ports where they own or control terminals, such as Bremerhaven and Wilhelmshaven in Germany. As a result, Hapag-Lloyd has announced a 10% reduction in cargo at the Hamburg port. The financial status of HHLA, which started trading on the stock exchange in 2007, can be seen in its share price—initially traded at 59 euros per share and recently hovering around 16 to 17 euros. To modernize and automate its terminals, HHLA urgently needs an injection of funds.
In a bold move, Hamburg's red-green Senate decided on drastic changes beginning at 6 a.m. on September 13, 2023. Mayor Peter Tschentscher, along with Economics Senator Melanie Leonhard and Finance Senator Andreas Dressel (all SPD), surprised the press by announcing that MSC would invest in HHLA, securing a 49.9% stake in the company. The city would reduce its ownership to 50.1%.
Tschentscher praised this groundbreaking deal, saying it would create a strategic partnership between the city and MSC Group, the Italian Aponte family's Geneva-based company. "This collaboration can give our entire maritime economy the boost it needs in challenging times."
So, what exactly is on the table?
In exchange for nearly half of HHLA's shares, MSC has agreed to boost its cargo volume at HHLA terminals, reaching one million TEU per year by 2031. Additionally, it intends to construct a new German headquarters in Hafencity, home to MSC Cruises, creating an additional 700 jobs in Hamburg. The city and MSC also plan on increasing HHLA's equity capital by 450 million euros.
Dressel revealed that the primary goals of the negotiations were twofold: "We must retain the majority, and we must ensure co-determination." Both objectives have been accomplished. "As a city, we will also continue to have the right to propose candidates for CEO and supervisory board positions."
Following the Senate's declaration, what ensued?
There's been a wave of upset. dockworkers have taken to the streets numerous times, expressing their discontent through heated protests – most recently last weekend – and even hinting at an unofficial strike. Various organizations like works councils, the Verdi union, and experts have warned in expert meetings and a public hearing at the Hamburg Parliament about a "historic blunder" and urged parliament members: "Don't steer us towards disaster." According to the document, dismissals, substantial staff reductions, or leaving employer associations "won't be an option within the next five years." However, critics argue that this doesn't apply beyond that timeframe.
Primarily, MSC's business practices are under scrutiny. MSC isn't particularly renowned for its support of co-determination; in fact, they once dismissed a former works council chairman at a Hamburg subsidiary – a decision that was ultimately overturned by the labor court, as per Verdi. Or consider MSC CEO Soren Toft, a familiar figure in Hamburg. In 2017, as CEO of the world's second-largest shipping company, Maersk, he promised that Hamburg Süd would continue to operate as a "commercially independent brand" following its acquisition. However, in 2021, the company celebrated its 150th anniversary, but by 2023, not even its name remains.
Where else did criticism of the MSC deal arise?
There are several points of contention. Many believe that the agreed-upon price of 16.75 euros per share, totalling around 233 million euros, for the municipal HHLA shares is significantly undervalued. Gunter Bonz, former President of the Association of Hamburg Harbor, told the "Hamburger Abendblatt": "Bravo to MSC. The company has played its cards perfectly and taken the Senate for a ride." The HHLA is valued much higher, with Metrans alone estimated to be worth two billion euros. The maritime affairs spokesman of the CDU parliamentary group, Goetz Wiese, has already filed a complaint with the European Commission. "There were secret negotiations, no tendering, no evaluation based on recognized economic principles, and independent experts were barred from viewing the contract documents," he explained his actions.
As for who MSC is?
It's a challenging question. Established facts include: MSC is the world's largest container shipping company, with a container division comprising 760 ships serving 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, holding a 50% stake in MSC Gate Bremerhaven. Beyond that, official information is scarce. MSC CEO Toft has already stated: "We provide the information we need to provide," offering no further details. The company's revenue and profits are confidential. It's rumored that MSC generated over 86 billion euros in revenue and 36 billion euros in profit in 2022, figures analysts consider plausible – the profit alone would almost match the double budget of the Hanseatic City of Hamburg for 2023/24.
- Given the budgetary implications of the deal, the EU Commission is closely scrutinizing MSC's investment in HHLA, as any significant changes in the port logistics firm could impact the city's revenue.
- Despite HHLA's financial struggles and criticisms about its budgetary management, the red-green Senate believes that MSC's investment can provide the necessary funds for modernization and automation, crucial for the future growth of the company.
