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Hapag-Lloyd: First Half "Solid," With Higher Volumes, Rates

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Hapag-Lloyd: First Half "Solid," With Higher Volumes, Rates

The Hamburg, Germany-based container shipping company Hapag-Lloyd (HLAG.D.IX), which reported results in both U.S. dollars and euros, had net profit of $56 million in the second quarter of 2019, compared to a net loss of $80 million in the same period last year. Revenue in the second quarter of this year was $3.57 billion, compared with $3.36 billion in the same period in 2018.

Second quarter earnings before interest and taxes (EBIT) was $197 million this year, compared to $47 million in the second quarter of 2018. Earnings before interest, taxes, depreciation and amortization (EBITDA) climbed to $524 million in the second quarter this year, compared to $251 million in the second quarter of 2018.

"Thanks to higher transport volumes in our core trades, good cost control and slightly better freight rates, we can look back on a good first half year. This also allowed us to redeem additional debt through the early repayment of a senior note," said Rolf Habben Jansen, chief executive officer of Hapag-Lloyd.

Speaking about the outlook for the container shipping industry this year, Habben Jansen said volumes are growing more slowly this year, citing estimates of 3.4% growth in container volumes this year compared to 5.2% in 2018. 

"Having said that, we don't see any signal that the market is falling apart," he added. The company expects a peak season in the second half of the year. While in 2018 there was a steep increase in freight rates from late July or early August, "it's a little bit slower this year if you look at the indices. I still expect a peak season, but it is always a little bit difficult to judge when exactly it will start and stop. When you look at our bookings, there is no reason to be extraordinarily concerned."

He noted that the orderbook-to-fleet ratio for containerships is 10%, down from 28% in 2011. 

At the same time, scrapping levels are very low. Habben Jansen cited an estimate that they will be just 1.3% of the world fleet this year. He said the pace of scrapping of older ships may increase after the requirement promulgated by the International Maritime Organization that shipowners use low-sulfur fuel goes into effect Jan. 1, 2019 and fuel prices rise. That may make operating older ships less attractive and cause scrapping to increase 

Hapag-Lloyd said it expects its transport volumes and average freight rates to increase slightly in 2019. It is forecasting EBIT of 500 million to 900 million euro in for the full year 2019 compared to the 443 million euro EBIT it reported in 2018.

Hapag-Lloyd handled 3,038,000 TEUs at an average freight rate of $1,063 per TEU in the second quarter of this year, compared with 2,987,000 TEU at an average freight rate of $1,010 per TEU in the second quarter of 2018.

Habben Jansen said Hapag-Lloyd is growing more or less in line with the market on most routes. However, he noted the company reduced volumes on some intra-Asia routes where it was not able to make money. On the other hand, the company has added two new services to strengthen its offerings in Southeast India and Africa.

The company also has boosted its reefer business with the order of 3,420 new reefer containers to expand its reefer capacity to 210,000 TEUs. Habben Jansen said most of that capacity is aimed at the South America market.

"After a solid first half of 2019, our outlook remains unchanged, even if we have to deal with more trade restrictions and see increasing geopolitical risk, which of course could impact growth in the second half of the year," said Habben Jansen.

He said the company will continue implementing its Strategy 2023, which has three core objectives: becoming No. 1 for quality, remaining a global player and being profitable throughout the entire economic cycle.

The company is continuing efforts to reduce costs and to achieve annual cost reductions of between $350 million and $400 million by 2021.

Hapag-Lloyd has a fleet of 237 containerships as of June 30 and is ranked by Alphaliner as the fifth-largest container carrier in terms of capacity after Maersk, Mediterranean Shipping Company, COSCO Group and CMA CGM. Alphaliner says the capacity of its fleet is 1,686,026 TEUs or 7.2% of the global fleet. It is a member of THE Alliance, whose other members are Ocean Network Express, Yang Ming, and starting next April, Hyundai Merchant Marine.

Responding to a question about trade press reports that the company might order a half dozen 23,000- TEU containerships, Habben Jansen said the company had no plans to order ships this year, but also said "it's not as if Hapag-Lloyd is never going to order any vessels anymore."

More than 92% of Hapag-Lloyd's stock is owned by five investors. Asked if the company might issue additional equity if it decides to purchase additional ships, Habben Jansen said that was not likely. He said while the company would like to increase its free float, that "is largely outside of our own control."

Image Sourced From Pixabay

Posted-In: Freight Freightwaves Logistics Supply ChainEarnings News Markets General

 

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