Hapag-Lloyd’s Strategy Pays Off

Hapag-Lloyd, the world’s sixth-largest container carrier, is set to move from financial intensive care into operational convalescence.

According to Hapag-Lloyd insiders, the shipping line moved out of the red toward the end of 2009 on the back of rising cargo volume and firming freight rates — especially in its key Asia-Europe trades — that signal container shipping is emerging from its deepest-ever recession.

The German carrier will again be a drag on TUI, its largest shareholder, when the tourism giant on Feb. 15 publishes its results for the final quarter of 2009. Hapag-Lloyd’s $1 billion-plus full-year loss — following a $985 million deficit in the first nine months of 2009 — will be the big news. But more important will be confirmation the carrier was breaking even at the operational level in the final weeks of the year.

Hapag-Lloyd isn’t about to start making serious money again or paying a dividend to its shareholders. But there are signs the carrier is better placed than many of its rivals to take advantage of the container shipping recovery.

Hapag-Lloyd’s shareholders — TUI, which holds 43.3 percent, and the Hamburg-based Albert Ballin consortium, with a 56.7 percent share — are finally seeing results from their $2.7 billion capital injection; the carrier has become a leaner and fitter company.

Hapag-Lloyd has trimmed its headcount, reduced its payroll, frozen recruitment, streamlined its regional offices and restructured liner services as part of a plan to cut $1 billion in costs annually. It also has cajoled shipowners, many of them German, to reduce ship charter rates — a major cost item because 58 of its 117 vessels are hired, accounting for more than 45 percent of its total fleet capacity.

And unlike many of its rivals, Hapag-Lloyd isn’t weighed down by a huge order book of giant ships. It has just 11 vessels — with combined capacity of 96,250 TEUs — on order, equal to 19.6 percent of its current capacity, according to AXS-Alphaliner, the Paris-based shipping analyst and consultant.

France’s financially troubled CMA CGM, by contrast, has an orderbook equivalent to 47.5 percent of its current capacity and is spending valuable management time struggling to cancel a third of its contracts with South Korean shipyards.