Hapag Lloyd Ag Business Information, Profile, and History

History of Hapag Lloyd Ag

Hapag-Lloyd is Germany's largest ocean liner shipping company and one of the largest shipping companies in the world. The company was formed in 1970 when Hamburg-Amerikanische Packetfahrt-Actien-Gesellschaft (Hapag) and Norddeutscher Lloyd (NDL) merged. Unlike some of Hapag-Lloyd's major European competitors who have diversified into non-shipping activities, Hapag-Lloyd continues deriving the majority of its revenues from deep sea liner shipping, and concentration on this core business remains at the center of Hapag-Lloyd's strategy for the 1990s.

Hapag and Norddeutscher Lloyd were established in the mid-nineteenth century to accomodate the escalation in European migration to North America. Hapag was founded in Hamburg on May 27, 1847 by a group of German merchants and shipowners led by Adolf Godeffroy, Ferdinand Laeisz, August Bolton, and E. Merck. Ten years later, on February 20, 1857, Norddeutscher Lloyd was founded in Bremen by C. A. Crüsemann and H. H. Meier.

Initially Hapag used sailing ships to provide passage from Hamburg to New York. A trip to New York generally took 40 days, and the return trip 29 days. The time onboard was reduced to two weeks for a round trip when, in 1856, Hapag's first steamship, Borussia, completed its inaugural run.

In 1872 several Hamburg merchants founded the Transatlantische Dampfschiffahrts Gesellschaft, or the Adler Line, to serve the transatlantic trade. The Adler ships were bigger, faster, and generally of a higher quality than those of Hapag. Unprofitable times ensued, characterized by increased competition, price wars, and the mid-1870s economic depression in the United States, during which passenger rates fell drastically. Hapag bought the Adler Line in 1875 to prevent it from falling into the hands of stronger competitors, particularly NDL. The purchase necessitated a major restructuring of the Hapag fleet; the number of passenger ships was reduced and smaller cargo vessels were introduced on routes to the West Indies and the Carib-bean.

In 1886, the passenger manager of the Carr-Union Line, Albert Ballin, also became Hapag's passenger manager. Ballin's dual appointment reflected the wish of both companies to avoid further rate wars, which Ballin achieved by operating the Hapag and Carr-Union Line ships as a pool. In 1890 Hapag bought Carr-Union Line's ships and integrated them into the already existing fleet, effectively ending the separate existence of the Carr-Union Line. By 1892 Hapag had carried 526,000 passengers across the Atlantic, approximately 200,000 fewer than NDL.

In 1892 Ballin, by this time a member of the Hapag board of directors and a major influence in the company's development, formed the Conference of North European Lines--later the North Atlantic Conference. Original members were Hapag, NDL, Holland America, and Red Star. This organization pooled resources to avoid duplication of effort and competition which would push down rates.

Similarly, NDL experienced growth during this time. Finding cargo and mail links between Germany and the East to be inadequate, German traders were forced to rely on British and French mail services which were run to suit their own national requirements. In 1885 a law providing for imperial German mail steamer subsidies to East Asia and Australia was enacted, and NDL was awarded the contract. In return for an annual subsidy of 4.4 million marks, NDL agreed to run a monthly service from Bremerhaven to China with feeder services to Hong Kong and Japan as well as a monthly service to Australia with feeder service to several South Sea islands. The early years of the trade proved difficult. NDL's ships proved unsuitable for the tropics and had too much passenger accommodation relative to cargo space. The need to purchase new ships placed a strain on NDL's finances. In 1892, however, following an agreement with the government, the service was streamlined and moved into profit in 1893. NDL's mail contract was subsequently renewed until 1914.

Hapag had been too weak to compete for the original mail contract following the rate battle with the Carr-Union Line. Concerned that Hapag was too dependent on trade with the Americas, Ballin instituted a monthly freight service between Hamburg and eastern destinations, including Singapore, China, Hong Kong, and Japan. In 1898 Hapag also bought the Kingsin Line which had been operating a Far Eastern service out of Hamburg for some years, and thus acquired 13 ships and became a major player in the Far East market. In order to avoid a rate war during this time, NDL offered Hapag a share in the imperial mail contract. The service was pooled with alternate fortnightly departures from Bremen and Hamburg.

This era of close cooperation between the two companies lasted until 1903. In the early twentieth century, Hapag was the world's largest shipping company, owning 190 deep sea vessels, operating on 74 routes, and calling at over 350 different ports worldwide. NDL had 135 deep sea vessels and coastal ships bringing the NDL fleet total to 494 ships. Hapag and NDL together employed 51,000 staff members, including 30,000 seafarers. In addition to their superiority in cargo shipping, Hapag and NDL were by 1914 the undisputed world cruise leaders. Both companies took great pride in operating cruiseships of a most luxurious standard and offering the most imaginative itineraries. At the outbreak of World War I, however, their liner services were largely curtailed. NDL's and Hapag's first postwar cruises did not take place until 1925 and 1926, respectively.

During the war, vessels from both fleets contributed to Germany's war effort by acting as blockade runners, auxiliary cruisers, troop carriers, and supply ships. Many of these ships were lost during the conflict. After the war, however, the fleets of NDL and Hapag were considerably diminished; most ships remaining in the German merchant fleet and all new vessels manufactured before armistice day had to be transferred to the allies. The companies were left with a handful of small ships suitable only for coastal ser-vices.

Hapag and NDL, along with all other German shipping companies, had to rebuild from scratch after 1918. They began by taking over the agencies for the British companies Alfred Holt and Ellerman Lines. Hapag acquired the Hamburg line of Japanese company Nippon Yusen Kaisha (NYK) while NDL obtained NYK's Bremen line. In 1921 Hapag managed to reestablished its North Atlantic service through a joint agreement with United American Lines. Two years later, Hapag's first postwar passenger liner, Thuringia IV, joined the fleet. By 1925 the Hapag fleet had already reached 45 ships, and purchases and construction continued.

The largest postwar addition to Hapag's fleet took place in 1926, when it acquired Deutsch-Australische Dampf-schiffs-Gesellschaft (DADG), at one time Germany's third largest shipping company with 51 vessels. During this time NDL was also steadily regaining some lost ground. NDL purchased some of its former vessels from the allies, and, in January 1922, it resumed transporting mail and freight to the Far East. Later that year, NDL recommenced passenger services to the Far East with its first vessel assembled after World War I, the Weser. Newer ships were deployed to the Far East by NDL as German trade in the region experienced a sustained upturn.

A worldwide economic slump from 1930 to 1932, however, created an international shipping crisis. Hapag, in particular, remained under financial pressure from the merger with the heavily indebted DADG. In addition to falling rates and volumes, and other financial pressures, both Hapag and NDL suffered severe liquidity problems, forcing them to apply for loans, restructure their capital, and mortgage some of their tonnage. In response to their financial plight and the depressed state of the market, Hapag and NDL formed the Hapag-Lloyd Union in 1930. The union went much further than typical pooling arrangements. Both partners retained their individual company identities, but all services and activities were operated jointly and all profits and losses shared. Furthermore, representatives of each company sat on the other's board, and a program to sell unused tonnage for scrap was set in motion. Services were further streamlined as other rationalization measures were adopted.

However, the union proved transitory. In 1935, the government, which had taken a 51 percent stake in both companies, ordered an end to the agreement and all other shipping partnerships and cartels. The total breakup of Hapag and NDL into a number of smaller operators was prevented only by the determined intervention of respective chairpersons Emil Helfferich and Karl Lindemann. Despite restrictions, Hapag and NDL were still able to operate several joint overseas services--a practice necessitated by the intense international competition of the 1930s. Towards the end of the decade, they placed orders for three combined passenger cargo vessels; NDL's 'Scharnhorst' and 'Gneisenau' and Hapag's 'Potsdam' were among the most advanced of the time and were among the most famous vessels ever owned by these two companies. At the onset of World War II, Hapag and NDL were once again ranked with the world's greatest shipping companies. The Hapag fleet consisted of 108 deep sea vessels while NDL owned and deployed 73 deep sea vessels servicing a wide range of international routes.

Throughout the Second World War, the German merchant fleet and the country's navy worked together closely. Merchant ships were dedicated to supplying the German war effort and to breaking blockades in the Far East. Some ships were converted to armed merchant cruisers or were used as naval auxiliaries. In 1941, however, the state sold its majority stakes in both Hapag and NDL, and in the end, the Potsdam agreement required all German ships and related installations which had survived the war to be handed over to the allies, forbidding German shipping companies to engage in overseas trade activities for five years.

In the interim NDL began a towage service between Hamburg and Bremen, which it later extended to other German ports, and both Hapag and NDL became involved in parcel carrying services and catering. Hapag started its first postwar overseas service in 1950 with chartered ships to the West Indies. Within a year Hapag was again active in the North Atlantic cargo trade and had restarted service from Cuba to Mexico. Three years passed, however, before either Hapag or NDL were in a position to resume their trade with the Far East, one of their most important prewar routes. The almost complete loss of assets by the end of the war made external aid crucial for German shipping companies trying to reconstruct their fleets. An act of Parliament was passed on September 27, 1950, which empowered the federal government to offer favorable long-term loans for ship construction. By 1951 tax relief became available for shipbuilding loans, and both companies began steadily rebuilding their fleets. The Hapag fleet grew from seven ships in 1951 to the postwar peak of 67 vessels in 1960.

Postwar reconstruction of Hapag and NDL services had, in most cases, progressed on a joint basis, and they formalized their cooperation in 1970 with a complete merger, encouraged by the most crucial change in postwar liner shipping, the 'containerization revolution.' Hapag-Lloyd became involved with four other partners--NYK and Mitsui O.S.K. Lines, both of Japan, and Overseas Containers Ltd. and Ben Line of the UK--in a multinational cooperation of what became known as the TRIO Group. The TRIO service involved 19 gigantic containerships, replacing 60 conventional vessels, and representing the largest investment ever in the history of liner shipping.

In 1973 Hapag-Lloyd became involved with chartered aircraft, a move inspired by the holiday package boom. The business expanded rapidly. At the end of 1991 Hapag-Lloyd owned 20 aircraft with a combined seating capacity of 3,573. The majority of Hapag-Lloyd's aircraft fleet came into service after 1988.

The first years of Hapag-Lloyd's merger were difficult. Worldwide, shipping was in a slump resulting from overtonnage; German shipping, in particular, was hit by the strength of the Deutschmark. After a flurry of construction in the 1970s as containerization took root, Hapag-Lloyd took delivery of only two new buildings between 1978 and 1989. Deliveries resumed in the late 1980s as Hapag-Lloyd put some of the world's largest and most advanced containerships into service.

The fortunes of the shipping industry improved in the second half of the 1980s, but Hapag-Lloyd turnover remained flat and profits disappointing. The 1990 results of the liner shipping division were the worst since the introduction of containerization. However, 1991 results exceeded expectations: in the liner sector, profits in eastern trades more than compensated for the disappointing results on the North American routes. Despite the Gulf crisis, tourism developed favorably in 1991, and it is this sector which is expected to yield the best results for Hapag-Lloyd in the first half of the 1990s. Nevertheless, the majority of Hapag-Lloyd's profits are derived from liner shipping.

Principal Subsidiaries: Liner Shipping: Rickmers Linie GmbH; Hapag-Lloyd Nederland B.V.; DCD (Belgium) N.V.; Hapag-Lloyd Belgium N.V.; Hapag-Lloyd Austria Ges.mbH; Hapag-Lloyd (Schweiz) AG; Hapag-Lloyd (France) S.A.; Hapag-Lloyd (UK) Ltd.; Hapag-Lloyd (America) Inc.; 100 Meadowcreek Inc. (US); Hamilton Terminal Corp. (US); Hapag-Lloyd International S.A. (Panama); Hapag-Lloyd (Japan) Ltd.; Hapag-Lloyd (Taiwan) Shipping Agencies Ltd.; Hapag-Lloyd (Singapore) Pte. Ltd; Hapag-Lloyd (Asia) Pte. Ltd. (Singapore); Tourism: Hapag-Lloyd Fluggesellschaft mbH; Deutsche Flugzeugver-mietungs AG; DEFAG Deutsche Flugzeugv. AG & Co. KG; Hapag-Lloyd Reisebüro GmbH (Bremen) AG; Hapag-Lloyd Tours GmbH; Hapag-Lloyd Kreuzfahrten GmbH; Other Activities: Hapag-Lloyd Transport & Service GmbH; Lütgens & Reimers GmbH; ISI Insurance Service; Hapag-Lloyd Verwaltungsgesellschaft mbH.