Privately owned Hamburg Süd reported that growth in the global economy and containerized transportation by sea in 2013 were slightly below levels of the previous year. Once again, available global slot capacity outpaced container transport volume as deliveries continue to exceed scrapping levels, which also increased. As a consequence of the continuing overcapacity, freight rates in most trade lanes remained under pressure or declined still further. The only positive support came from fuel prices, which have fallen slightly from the highest level of the previous year.

Due to subdued market growth and operational problems in the vastly overstretched ports in Brazil, Hamburg Süd and its Brazilian subsidiary Aliança were only able to increase transport volume in liner services by 1 per cent year-on-year to around 3.3 million TEUs. With freight rates falling slightly and devaluation of the U.S. dollar by around 4 per cent against the euro, total revenues of the business field shipping fell by 3.9 per cent to 5.3 billion euros.

In 2013, worldwide bulk shipping was still marked by substantial overcapacity and transport volumes – particularly to China – falling below expectations, even if there was an apparent improvement towards the end of the year. Overall, Hamburg Süd’s bulk business and product tanker business failed to generate positive results last year. Liner services were slightly better than the previous year, and also performed well by industry comparison.

The number of staff employed by the shipping Group was about the same as the year before at 4,491 (previous year: 4,512), of which 686 were at sea. Including those seafarers employed by third-party companies (but excluding trainees), the number of staff employed by Hamburg Süd and its subsidiaries was 5,159.

Despite the unsatisfactory business environment, 2013 investments totaling 450 million euros were considerably above the level of the previous year (247 million euros). These investments mainly comprise instalments and final payments for twelve 9,000/9,600-TEU ships and four smaller 3,800-TEU newbuilds.

Business environment

Trust in the European markets was only partially restored in 2013. Continuing high levels of debt in some countries contributed towards subdued growth in the eurozone. After the end of the budget crisis in the U.S., there was a slight improvement in economic growth and positive progress on employment levels. The Chinese economy expanded again by around 7.7 per cent, thereby meeting expectations. In contrast, growth in Brazil remained unsatisfactory. Weak economic development, rising interest rates and inflation, and serious infrastructure challenges were causes for concern. Overall, global economic growth of around 3.0 per cent was somewhat weaker than in the previous year.

Whilst worldwide container transport increased by 3.7 per cent in 2013, global slot capacity increased by about 6 per cent (1.0 million TEUs) to 17.3 million TEUs. Scrap rates reached record levels of around 500,000 TEUs in 2013 (over 200 ships), but net capacity continued to grow due to the high volume of newbuild deliveries during the year. Orders also increased again, with new orders in 2013 for 234 ships with a total capacity of 1.83 million TEUs and a total value of US$16.8 billion, or 1.34 million TEUs more than in the previous year. At the end of December 2013, the order book again stood at more than 20 per cent of the worldwide operational fleet capacity. In the segment for 9,000-TEU ships alone, the order volume increased from around 50 to around 150 ships over the course of just a few months.

Due to substantial overcapacity, charter rates for most ship classes remain under pressure. Average rates for Panamax ships (4,400 TEUs gearless) in 2013 of US$8,700/day were only slightly above the historical low in the summer of 2009, and barely covered operating costs, let alone interest costs and capital repayments. Numerous German shipowners became insolvent during the reporting year. Banks offering ship finance will need to take substantial write-downs on their loans.

The overcapacity means that there is no scope for the restoration of freight rates that is so urgently required for liner services worldwide. Increases were only possible for individual services for a limited time. Freight rate recovery for refrigerated goods during the first half-year did not last. Over the course of 2013, rates for most services fell back to a level that is wholly insufficient in light of the high level of investment in and operating costs for reefer containers, and on-board equipment.

Fuel prices reached an annual high of US$646 per tonne during the first quarter 2013. Over the further course of the year, the average price for heavy diesel fell to just below US$600, with an annual average price decline of around 7 per cent.

The business environment for bulk shipping is largely determined by Chinese demand for coal and iron ore for steel production. In 2013, the People’s Republic imported 801 million tonnes of iron ore and 214 million tonnes of coal. Year-on-year growth was 10.7 per cent and 19.6 per cent respectively. Global bulk transport increased by around 5.5 per cent. At the same time, newbuild deliveries of bulk carriers capacity of around 62 million tdw were considerably lower than in the previous two years (each around 100 million dwt), despite consistently high levels of scrapping of old tonnage. At the same time, there was only a minimal improvement in bulker charter rates during the course of the year. The same applies to product tankers, which failed even to cover operating costs.

Hamburg Süd ships and containers

As at 31 December 2013, Hamburg Süd’s fleet consisted of 154 ships, 45 of which were owned by the Group. Of these, 103 ships were employed in liner services, and 51 chartered-in ships were employed in tramp operations (bulkers, product tankers). During the course of the year, the fleet of owned ships was expanded by the first four newbuilds of a total of six ships in the Cap San series. With a capacity of 9,600 TEUs, these are the largest-ever ships in the Hamburg Süd Group. They have 2,100 reefer slots on board, and are therefore the world’s largest reefer capacity vessels. The new ships were introduced into services between Asia or Europe and the East coast of South America. Hamburg Süd subsidiary Aliança also introduced four 3,800 TEU ships into the Brazilian cabotage service. These wide-beam newbuilds set new standards for cost efficiency on the South American East coast. Three older Panamax ships of the Bahia series (3,800 TEUs) were sold at the end of 2013, and another three at the start of 2014. Available slot capacity in liner services increased by about 6 per cent to approximately 457,000 TEUs, and the average ship capacity increased by 7 per cent to 4,437 TEUs.

Hamburg Süd Group is continuing its strategy to further improve the efficiency of its fleet. Increasing average capacity of its vessels is the basis for constantly reducing cost per slot.

At the end of 2013, the order-book for Group-owned ships to be delivered in 2014/2015 was about 78,000 TEUs. The total number of containers remained virtually unchanged year-on-year at around 458,000, reflecting moderate growth in cargo volumes only.

Liner services

Against a background of a strong recovery in ocean freight rates for transportation of refrigerated goods, liner services had a much better start to the year than in the previous year. Due to unsatisfactory volume growth, however, and overcapacity in Asian services, earnings were under considerable pressure during the rest of the year. Volume growth was weaker than expected; strikes in Chile at the beginning of the year, overloaded infrastructure in Brazilian ports, and political and economic problems in Venezuela and in Mediterranean countries had a negative impact on cargo operations. The service between Europe and India/Pakistan – which suffered a rather dramatic fall in rates from time to time – was particularly disappointing. Owing to unsatisfactory seasonal business on Asian routes, many services had already adjusted their capacity from the beginning of December in anticipation of falling volumes in the off-season. Some individual routes or entire services were taken out of service for several months, and ships are being laid up in order to reduce system costs and to offset at least some of the earnings shortfalls.

Relief came in the form of a slight fall in bunker prices, the successful implementation of service rationalisations, and measures to reduce bunker use.

Overall, Hamburg Süd was able to post a slight year-on-year improvement in results from liner services, although due to rate pressure in Asia-South America services, unsatisfactory business conditions in the Mediterranean and the service between Europe and India/Pakistan, none of the targets with respect to overall earnings were met.

Tramp shipping

Neither bulk carriers nor product tankers generated positive earnings in 2013. Their results were at the same level as last year.

Outlook 2014

Economic conditions should improve in 2014. According to the International Monetary Fund (IMF), the global economy should grow by 3.7 per cent, and world trade by 4.5 per cent, with the U.S. economy in particular set to become more dynamic. In the eurozone, all signs point to some countries emerging from recession, even if high public deficits continue to be a cause of concern in many countries. Despite positive impacts from the upcoming soccer world championship events, there is no sign of a sustained solution to Brazil’s economic issues. Growth in the Chinese economy will also be of decisive importance over the coming year.

Even if the overall positive outlook for the global economy should turn out to be correct, we do not yet expect a sustained recovery of container liner services during 2014, mainly due to continuing increases in overcapacity. Although many liner shipowners remain highly indebted, orders for new ships are rising again. Indirect government support from the large shipbuilding countries Korea and China, and private equity – mainly from the U.S. – are shoring up ship financing despite the failure of the German KG-company system. The trend towards ever larger and more fuel-efficient ships continues. At the same time, older ships continue to be scrapped at lower rates than orders for newbuilds. The delay of at least a year in the expansion of the Panama Canal – the expanded canal is not expected to open now until 2016 – will mean that older Panamax vessels will remain in service longer, whilst the newbuilds ready to step into service cannot yet be utilized as originally planned.

It remains to be seen if the intended pooling of operations of the world’s three leading players Maersk, MSC and CMA CGM on the major East-West routes will be successful in the long run, or if it will provoke similar joint ventures or even mergers.

Hamburg Süd will expand its activities in its core services to and from South America and add to its network where it makes sense. Based on its high ownership rate of modern ships and containers, the focus of corporate management in 2014 will remain a continual improvement of all cost items.

2014 should see increases in revenues and charter rates in bulk shipping due to expected continuing global volume growth of 5–6 per cent per year and a decrease in newbuild deliveries. The tramp business of the Group operated by Rudolf A. Oetker, Furness Withy and Aliança Bulk is expected to show improved results in 2014, though not to an acceptable level. The same applies to product tanker operations.

Overall, we anticipate that the shipping Group’s operating result for 2014 will be at about the same level as last year.

The high level of investment to renew the Group’s IT infrastructure continues, along with projects to reduce the environmental impact of ship operations and improve the sustainability of our business activities. Hamburg Süd is preparing its fleet for the introduction of stiffer emissions rules under MARPOL IV, which includes the use of low-sulphur fuels in coastal waters, and equipping its ships that operate on the U.S. West coast with facilities to receive shore-side electricity. Initially, additional operational cost of Hamburg Süd will increase by at least US$40 million per year which, regrettably, the company will be forced to pass on to shippers as surcharges.