By Nicholas Brautlecht

(Bloomberg) — Hapag-Lloyd AG is in talks with United Arab Shipping Co. on a attainable mixture of their container companies, doubtlessly establishing the German firm’s second merger in two years because the maritime-freight business grapples with a drop in costs.

Hapag-Lloyd would account for 72 % of the mixed entity’s worth and UASC for 28 %, the Hamburg-based firm stated Thursday in an announcement. The carriers haven’t reached a binding settlement and should not full a deal, it stated. Hapag-Lloyd’s inventory jumped to a three-month excessive within the greatest acquire for the reason that firm’s preliminary public providing in November.

The joint firm would rank fifth in an business dominated by Danish transport large A.P. Moeller-Maersk A/S. Hapag-Lloyd now holds sixth place following its 2014 merger with the container enterprise of Chilean rival Cia. Sud Americana de Vapores SA amid a wave of offers in response to losses stemming from plunging costs.

A merger would give Hapag-Lloyd speedy entry to a number of the largest container ships accessible as UASC, which has its headquarters in Dubai, operates six vessels with a capability of 18,800 normal 20-foot containers, or TEU, a measurement the German provider lacks and which is essential to working on Asia-Europe commerce routes.

“Hapag-Lloyd so far shied away from ordering the biggest vessels though stakeholder Kuehne has pushed publicly in that direction,” Oliver Drebing, an analyst at Hamburg-based Alsterresearch, stated in an e-mail. “If the merger works out, Hapag-Lloyd would no longer have to make the decision to order bigger ships.”

Hapag-Lloyd, which counts billionaire Klaus-Michael Kuehne as one among its greatest house owners, surged as a lot as 16 % to 19 euros as of three:46 p.m. in Frankfurt, the best intraday value since Jan. 14. That pared the inventory’s decline since its IPO to five %, for a market worth of two.24 billion euros ($2.54 billion). UASC gained 1 % to 1.04 Egyptian kilos on the shut in Cairo, valuing the corporate at 208 million kilos ($23.4 million).

International commerce has but to recuperate from the worldwide recession eight years in the past, prompting container carriers to merge or type alliances to outlive. CMA CGM SA’s takeover of Singapore’s Neptune Orient Lines Ltd. and the mixture of China Cosco Holdings Co. and China Shipping Container Lines, each introduced in December, have cemented CMA’s place as No. 3 worldwide and pushed Cosco into fourth place.

“A merger would be a positive step for Hapag-Lloyd, as size matters in that highly competitive industry,” Thomas Wybierek, a transport analyst at NordLB, stated by e-mail earlier than the German provider formally introduced the talks. “Hapag-Lloyd’s experience from the CSAV merger should create positive tailwinds for the next combination, even though the Chilean transaction was relatively recent and not all synergies have been finalized.”

Shareholder Kuehne, who holds about one-fifth of Hapag-Lloyd shares, has repeatedly stated the German provider must develop additional by means of acquisitions or mergers to remain aggressive. Chief Executive Officer Rolf Habben-Jansen stated on March 23 that the corporate could pursue additional mixtures if alternatives come up.

© 2016 Bloomberg L.P