By Mike Wackett
According to its preliminary annual result, incorporating seven months of merged UASC business, Hapag-Lloyd achieved an operating result (EBIT) of $464 million in 2017, compared with just $140 million the year before. And at EBITDA (earnings before interest, tax, depreciation and amortization) level, the company’s result almost doubled, from $671 million to $1.2 billion. But the German carrier is unlikely to show much improvement on its modest nine-month $8 million net profit when its full results are released on 28 March.
Boosted by UASC, Hapag-Lloyd’s turnover jumped 32 per cent to $11.3 million and the number of containers carried on its network rose to 9.8 million TEUs, from the 7.6 million TEUs loaded in 2016.
The bottom line will have been impacted by a combination of the lower rates for UASC – which it incorporated into the accounts in May 2017 – and by higher fuel costs. Hapag-Lloyd reported only “a slight recovery” in its average rate to $1,051 per TEU, from $1,036 per TEU in the previous year, which is well below the industry par. Moreover, when increases in fuel costs are taken into account, this is effectively a reduction.
At the Q3 results presentation in November, Chief Executive Rolf Habben Jansen explained why the improvement in average rates was well below its peers. He said it been necessary to maintain UASC’s lower rates following the integration of the two businesses. “It is a priority to hang onto volume in any merger,” he explained.
In fact, one Hapag-Lloyd executive told The Loadstar recently the carrier had succeeded in holding onto the majority of customers, which he credited to “marketing efficiency”.
Mr. Habben Jansen had also warned of the impact of higher fuel prices, saying they were “the biggest risk factor in the fourth quarter”. Year-on-year, Hapag-Lloyd’s bunker costs spiked by 41 per cent to $316 per tonne, and oil prices are still ticking up, the average cost of heavy fuel oil now at around $350 per tonne. Carriers have difficulty obtaining compensation from shippers for immediate increases in fuel costs, with a delay of three months the industry norm.
Hapag-Lloyd has promised $435 million annual cost synergies from the merger with UASC, and Mr. Habben Jansen has said that “80 or 90 per cent of that would be delivered this year”. Some 70 Hapag-Lloyd and UASC offices have been closed around the world in order to achieve the cost synergies.
Hapag-Lloyd is currently the fifth-largest container line in the world, with a capacity of 1.5 million TEUs and a 7.1 per cent market share, but the carrier could be overtaken in April by the merger of its Japanese partners in THE Alliance, K Line, MOL and NYK, into Ocean Network Express (ONE). Taking into account the orderbook – Hapag-Lloyd has no ships on order, whereas ONE has some 140,000 TEUs still to come from shipyards – the new Japanese line will leapfrog Hapag-Lloyd. And in this scenario, ONE will also replace Hapag-Lloyd as the “lead” line in THE Alliance vessel-sharing agreement.
Reprinted courtesy of The Loadstar (www.theloadstar.co.uk)