A decade ago, Hapag-Lloyd operated in the rarefied air along with the world’s most profitable global ocean carriers. Now, after five troubled years that featured a brush with bankruptcy, a $1 billion loss, a multibillion-dollar state-backed bailout, an investigation by European antitrust officials, aborted IPOs and the successful fending off of a takeover bid by Singapore’s Neptune Orient Lines, the German carrier is breathing that rarefied air once again.
In an industry that London-based Drewry Shipping Consultants estimated lost more than $5 billion last year, the German ocean carrier, the world’s fourth-largest by fleet capacity, was one of the very few to make money in 2011, even if that operating profit slid 83 percent from the year before to $133 million, according to preliminary figures released Feb. 15.
But even more significant for itself, its competitors and its customers, was the news a day earlier that German tourism group TUI, Hapag-Lloyd’s biggest individual shareholder, had cut a deal to reduce its stake in the carrier to 22 percent from 38.4 percent.
The sale of stock to members of the Albert Ballin consortium that already owned approximately 62 percent of Hapag-Lloyd, tipped the balance of power in the Hamburg-based carrier toward shipping-savvy investors with an intimate knowledge of its business.
Hapag-Lloyd’s majority owners now are the city state of Hamburg, owner of Europe’s second-largest container port, which paid $555 million to boost its stake to around 37 percent, and billionaire Klaus-Michael Kuehne, the largest shareholder in Kuehne + Nagel, who paid approximately $220 million to increase his 24.6 percent holding.
TUI will dispose of its remaining stake via an initial public offering, probably in June, or a sale to third-party investors.
Hapag-Lloyd’s 2011 performance, on the back of record $1.2 billion earnings in 2010, came as revenue dipped slightly to $8.1 billion from $8.2 billion a year earlier, mainly on exchange rate fluctuations. Its traffic of 5.2 million 20-foot equivalent container units was up 5.1 percent year-over-year, and average freight rates were virtually unchanged at $1,523 per TEU, compared with $1,569.
But that success also came with a ruthless $1 billion-a-year cost-reduction program of job cuts, wage and hiring freezes, regional office closures, restructuring of liner services and massive pressure on shipowners, mainly German, to slash charter rates for vessels that accounted for 45 percent of Hapag-Lloyd’s capacity.
Over the past two years, the carrier also managed to increase its share of an aggressively competitive container shipping market from 3.6 percent to 4 percent and more recently moved from fifth to fourth on research analyst Alphaliner’s ranking of Top 100 Ocean Carriers, behind Maersk Line, Mediterranean Shipping and CMA CGM.
The enlarged stakes held by the city of Hamburg and Klaus-Michael Kuehne are driven by hard-nosed business motives as much as by the patriotism that kept Hapag-Lloyd out of NOL’s hands in 2008. Hapag-Lloyd is the Port of Hamburg’s biggest customer: Together with its partners in the recently established G6 Alliance, it accounts for approximately half of the port’s container traffic. More than a quarter of Hapag-Lloyd’s 82 liner services call at Hamburg, and including feeder services, the carrier connects the north German port to more than 215 ports worldwide.
Kuehne + Nagel, the world’s third-largest freight forwarder and logistics company, is also a major customer of Hapag-Lloyd, and it helps that DHL, the world’s biggest ocean forwarder, and Schenker, another top 10 logistics company, also are German. German companies like to keep business in the national family, and interlinking deals are common across the transport sector.
Still, although Hapag-Lloyd remained in the black in 2011, the bottom line was a long way off earnings in 2010, when most carriers reported hundreds of millions of dollars in profits as they rebounded from the 2009 bear market. The $133 million operating profit was down 83 percent from 2010’s $770 million, while earnings before interest, tax, depreciation and amortization fell to $484 million from $1.23 billion, according to unaudited results.
Nevertheless, Hapag-Lloyd appears optimistic it can sustain the strong 2011 results. “Considering how unfavorable the market environment was, this sends out a strong message and once again reinforces the fact that Hapag-Lloyd is one of the most successful liner shipping companies,” CEO Michael Behrendt said.
The carrier can’t afford to relax as its rivals raise the stakes by ordering ever-bigger ships in a relentless race for economies of scale. Hapag-Lloyd will have just four vessels above 10,000 TEUs by the end of 2012, compared with 56 at MSC, 26 at CMA CGM, 21 at Maersk and 16 at Cosco.
But a more cautious investment policy — Hapag-Lloyd has 10 13,200-TEU vessels on order — could pay dividends as its competitors struggle to hit the 90 percent-plus load factors they need to turn a profit on their even larger ships.
Contact Bruce Barnard at email@example.com.