Volume gains offset weaker rates for Hapag-Lloyd

Volume gains offset weaker rates for Hapag-Lloyd

Hapag-Lloyd carried 11.9 million TEU in 2018, a 21 percent gain from the previous year. Photo credit: Hapag-Lloyd.

Hapag-Lloyd reported a stronger operating result for 2018 than in 2017, as double-digit revenue growth offset declining average freight rates and higher bunker prices for the carrier’s first year fully merged with United Arab Shipping Company (UASC).

After a slow start to 2018, business performance increased with steadily improving freight rates in the second half of the year, synergies from the UASC merger, and higher global transport volumes. Revenue for 2018 increased by 15 percent year over year to $13.5 billion, and volume rose by 21 percent to 11.9 million TEU. Earnings before interest, taxes, depreciation, and amortization (EBITDA) rose to $1.3 billion compared with 2017’s $1.12 billion.

But it was in the fourth quarter where the solid gains were recorded, with Hapag-Lloyd benefiting from the front-loading on the trans-Pacific trade ahead of threatened US tariff increases on Chinese imports. Earlier this year, Rolf Habben Jansen, CEO of Hapag-Lloyd, told JOC.com that the trans-Pacific peak season was far stronger than expected and that demand continued into December.

“Towards the end of the year we saw again very healthy volume, and what I can see is that also the beginning of the year has been fairly strong, and we see good volume,” he said.

The front-loading pushed trans-Pacific rates up to 10-year highs and kept vessels fully utilized through December, well past the end of the traditional annual peak season.

But underlying the Hapag-Lloyd financial result were higher bunker fuel prices that, although beginning to decline in the second half of 2018, eroded the positive impact of improving rates. In its 2018 results announcement, Hapag-Lloyd said the average bunker consumption price of $421 per metric ton for the year drove up the carrier’s annual bunker bill by 18 percent to $10.6 billion.

Whether carriers can recover rising bunker costs is the single greatest threat they face going forward as they struggle to achieve rate levels needed to compensate for the higher fuel prices. From Jan. 1, 2020, the International Maritime Organization (IMO) will impose a sulfur cap of 0.5 percent on marine fuel, forcing carriers to either burn cleaner but more expensive fuel or install exhaust scrubbers to lower the sulfur content of the heavy marine oil now in use. Heavy marine fuel oil is currently at $428 per ton, up 21 percent compared with the same week last year. Low-sulfur fuel is $525 per ton.

Maersk Line’s 2018 annual results also revealed the carrier’s battle with high fuel prices. Average freight rates compared with 2017 increased by $91 per FEU, but at the same time, average bunker prices rose 32 percent, equivalent to an extra bunker cost of $1.2 billion ($92 per FEU).

Contact Greg Knowler at greg.knowler@ihsmarkit.com and follow him on Twitter: @greg_knowler.