Hapag-Lloyd CEO says UASC merger benefits will manifest in 2017

German container shipping line Hapag-Lloyd expects to reap a third of targeted annual synergies of $400 million from its planned merger with Arab rival UASC next year, and realise them fully from 2019, its CEO said on Friday.

The company, which swung into the red in the first half of this year as tumbling freight rates hurt its business, signed a binding agreement with United Arab Shipping Company (UASC) in July to form the world’s fifth largest shipping company by the end of 2016.

The merger will give it greater scale as it seeks to weather a downturn in global shipping.

“We plan to realise the full synergies from 2019 and in that way to lower our costs permanently,” Chief Executive Rolf Habben Jansen told a shareholders meeting on Friday, held to decide whether to approve a related capital increase.

Hapag-Lloyd will still face merger costs next year. It estimates total merger costs at around 150 million euros ($169 mln) and has said they will be booked in its 2016 and 2017 balance sheets.

Some of the controlling shareholders have committed to backstop a cash capital increase of $400 million planned through a rights issue within six months of the deal closing.

The company hopes this will be achieved by the end of this year, depending on approval from around a dozen or so cartel authorities.

Habben Jansen also affirmed significantly lower earnings before interest and taxes for 2016. Freight rates fell 20 percent in the first six months of this year and the CEO has said they will take between 18 and 24 months to stabilise.

UASC shareholders backed the merger, which will create a group with an estimated value of 7 to 8 billion euros, in June with a relative valuation of the two businesses at 72 percent for Hapag-Lloyd’s shareholders and 28 percent for UASC’s shareholders.

Through the deal, Hapag-Lloyd gains access to bigger ships on the important Asia to Europe trade route. UASC for its part gets wider access to trans-Atlantic and trans-Pacific loops, where Hapag-Lloyd is strong.

Hapag-Lloyd merged with Chile’s Compania Sud Americana de Vapores (CSAV) in 2014, helping it to return to profit last year.

Hapag-Lloyd shares were marginally higher at 16.50 euros at 1000 GMT.

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