Hapag-Lloyd Cautious About Recovery
Hapag-Lloyd has released its 2016 annual report highlighting substantial earnings from its CSAV acquisition and its cost cutting program as the good news for the year.
The company closed the 2016 financial year with earnings (EBITDA) of EUR 607.4 million ($656.3 million), down on the previous year’s EUR 831.0 million. The Group’s net result came in at a loss of EUR 93.1 million ($100.6 million), compared to the previous year’s profit of EUR 113.9 million ($123.0 million).
“We had a very challenging market environment in the first six months of 2016, but were able to improve revenue and results significantly in the second half of the year. Even though we performed relatively well in the industry in 2016, the bottom line is still that this result is not satisfactory,” said Rolf Habben Jansen, Chief Executive Officer of Hapag-Lloyd.
“We expect some market improvement in 2017, but our success will largely depend on our ability to achieve more sustainable freight rates. Longer term, the lack of orders for new builds and the continued high scrapping figures point to a better equilibrium between capacity supply and demand.”
In 2016, Hapag-Lloyd’s transport volume rose by 2.7 percent year-on-year to 7.6 million TEUs. The average freight rate was $1,036/TEU, which was 15.4% lower than in the previous year ($1,225/TEU). Revenue fell from EUR 8.842 billion in the previous year to EUR 7.734 billion in 2016, mainly due to the significant decline in rates.
In 2016, Hapag-Lloyd managed to reduce its transport expenses by 12.3 percent. However, this reduction did not fully offset the decline in the average freight rate. The noticeable improvements in transport expenses were due to the lower average bunker price in 2016 of $210/ton (previous year: $312/ton) as well as a 6.3 percent reduction (compared to 2015) in bunker consumption brought about by the use of larger and more efficient ships.
Despite an increase in transport volume, Hapag-Lloyd successfully reduced the costs of purchased services (e.g. hinterland container transport costs; chartering and leasing costs; and port, canal and terminal costs) by 8.3 percent (compared to 2015). This was primarily due to synergy effects achieved through the merger with CSAV and the OCTAVE cost-cutting program but also due to market driven cost reductions (e.g. bunker) which will not necessarily be sustainable going into 2017.
The beginning of 2017 has been challenging. “Due to long term contracts, we have not yet been able to fully capture the recent positive rate development in the spot market while bunker price has increased significantly,” said Habben Jansen. “We will continue to work hard to make Hapag-Lloyd even more competitive and to build on our strong position. Our efforts will be supported by the expected synergies and the further diversification of our product portfolio due to the merger with UASC.”
Based on forecasts for global trade growth (IMF: 3.8 percent) and global container ship capacities, Hapag-Lloyd anticipates a moderate increase in the average freight rate and transport volume in 2017 (excluding UASC).
The preparations for the closing of the merger with UASC are in their final stages. From 2019 onwards, the merger is expected to result in annual synergies of $435 million.
Hapag-Lloyd expects a better EBITDA and EBIT year on year. “The key areas of focus for us in 2017 will be the launch of our new alliance as at 1 April and the rapid and seamless integration of UASC into Hapag-Lloyd,” said Habben Jansen.
Despite the results, Hapag-Lloyd, through a special government emergency decree, is offering cabotage services to get supplies to the North of Peru where severe flooding has resulted in the loss of 78 lives. Over 100,000 people have lost their homes and over 600,000 are affected.
Hapag-Lloyd and Consorcio Naviero Peruano are also supporting, offering transport of 300 tons of aid and donations free of charge to the affected area in the north of Peru (Ports of Paita and Salaverry) on its vessels.
Locally, Hapag-Lloyd (Peru) has delivered the first batch of staff donations and is currently working on a second collection of items such as water, canned goods, rice and non-perishable foods, sunblock and insect repellent.