Hapag-Lloyd loses $116 million, cites ‘significant geopolitical uncertainties’

Hapag-Lloyd loses $116 million, cites ‘significant geopolitical uncertainties’

Hapag-Lloyd.

“For the remainder of the year, we see a slow but steadily improving market environment, but we recognize that there are still significant geopolitical uncertainties that could influence the market,” said Rolf Habben Jansen, CEO of the world’s fifth-largest ocean carrier. Photo credit: Shutterstock.com.

Hapag-Lloyd’s first half net loss more than doubled to €100.9 million ($116 million) from €42.7 million a year ago, as rising fuel costs and the slow recovery in freight rates diluted the synergies from the German ocean carrier’s merger with United Arab Shipping Company.

“For the remainder of the year, we see a slow but steadily improving market environment, but we recognize that there are still significant geopolitical uncertainties that could influence the market,” said Rolf Habben Jansen, CEO of the world’s fifth-largest ocean carrier.

“This only reinforces the necessity to be able to react quickly when needed — and we therefore will accelerate some of our digitalization initiatives and finalize our new strategy until the end of this year.”

Revenue grew to just more than €5.4 billion from €4.5 billion in the first half of 2017 while operating earnings were down slightly at €88.7 million against €90.7 million last time.

The Hamburg-based company said the first half could only be compared to “a limited extent” with the previous year, as UASC’s financial results were consolidated on May 24, 2017, when it took control of the carrier and its subsidiaries.  

Container shipping sector cost concerns

The container shipping industry earned about $7 billion in 2017, according to Drewry, following six straight years of losses. However, initial forecasts of an encouraging 2018 gave way to a slow start, as rising bunker fuel prices, higher charter/inland costs, and ocean overcapacity concerns have hit first-quarter results.

Maersk Tuesday lowered expectations for earnings before interest, tax, depreciation, and amortization (EBITDA) from a range of $3.5 to $4.5 billion, from its initial estimate of EBITDA of $4 to $5 billion. Maersk said it still expects a 2018 profit, although it didn’t note whether it still expects it to exceed its 2017 profit of $356 million.

CMA CGM and Wan Hai also managed to turn in positive operating margins of 1.6 percent and 1 percent, respectively. Alphaliner noted that the remaining eight carriers all reported negative margins, with Hyundai Merchant Marine remaining at the bottom of the list for the eighth consecutive quarter with a margin of negative 15.6 percent.

The global container fleet is forecast to increase 5.4 percent this year as container volume rises 5.3 percent, according to IHS Markit’s Container Ships Forecast.

Concerning Hapag-Lloyd’s transport volume, it increased 39 percent year on year to 5.848 million TEU from 4.232 TEU, while the average freight rate slipped by $45 per TEU to $1,020 per TEU from $1,065 per TEU.

On a pro forma basis and compared with the combined businesses of Hapag-Lloyd and UASC in the first half of 2017, traffic was up 3.9 percent and rates increased 3 percent.

Atlantic trade

The Atlantic trade generated the biggest revenue of €979.5 million, up from €818 million, with volume rising to 914,000 TEU from 818,000 TEU a year earlier. Trans-Pacific route’s revenue rose to €952.6 million on traffic of 939,000 TEU compared with €899.3 million and volume of 789,000 TEU in the first half of 2017.

The rise in bunker prices to $385 per tonne ($424 per ton) from $312 per tonne was the main contributor to the carrier’s higher operational costs amid “ongoing intense competition”.

“The first half of 2018 was shaped by clearly increasing fuel costs, higher charter rates, and a slower than expected recovery of freight rates,” said Rolf Habben Jansen.

“In response to that, we have implemented additional measures to recover these costs: we are critically reviewing the economic viability of our ship systems and are further optimizing our terminal contracts, to gain additional relief on the cost side.”

Unlike its leading rivals, Hapag-Lloyd has no vessels on order and said it will not invest “heavily” in new tonnage up until the end of 2019.

Drewry Shipping Consultants has upgraded its container demand forecast for the next two years to 6.5 percent and 5.8 percent, respectively, and says there are signs of improvement on the key Asia-North Europe trade, which is lagging other “booming” markets as freight rates recover.

The risk to container shipping from US-led trade wars is currently low, but potentially “very damaging” the London-based consultancy said in its latest Container Forecaster.

Contact Bruce Barnard at brucebarnard47@hotmail.com.

 

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