The German ocean carrier said its financial results were impacted by costs from merger with Chilean liner CSAV.
German ocean carrier Hapag-Lloyd said it had an “extremely disappointing year” in 2014, with a net loss for the group in 2014 of 603.7 million euros ($653.3 million) compared with a loss of 97.4 million euros in 2013.
The company said its results were heavily influenced by “one-off effects, primarily the costs of acquiring and integrating CSAV’s container liner shipping activities and an impairment recognized for a portfolio of old ships. The plummeting price of oil eased the cost situation slightly, but only towards the end of the year as falling fuel prices at liner shipping companies take several months to be reflected in the figures.”
Total revenue at the company was 6.8 billion euros in 2014, up 3.7 percent over 2013.
Earnings before interest, tax, depreciation and amortization (EBITDA) in 2014 was 98.9 million euros, down from 389.1 million euros in 2013, and the company had an operating loss of 112.1 million euros compared with an operating profit of 67.2 million euro in 2013.
While Hapag-Lloyd’s transport volume grew by 7.5 percent to 5.9 million TEUs in 2014, the average freight rate was down 3.2 percent year-over-year at $1,434 per TEU.
Rolf Habben Jansen, chief executive officer, said the merger with the container arm of CSAV, which made Hapag-Lloyd the fourth largest container liner company, made 2014 a “highly significant, ground-breaking year for Hapag-Lloyd. We are now much more competitive and fit for the future, to which we are looking with optimism.”
The company said the merger will bring annual savings of at least $300 million and that integrating CSAV’s container business is running on schedule.
“We have already been able to exploit the first synergies, with many joint projects currently under way,” Habben Jansen said.
Integration of CSAV’s services into Hapag-Lloyd’s global network is set to complete by June, and Habben Jansen said the company has “launched a wide range of other measures from which we expect a substantial improvement in earnings.”
These include optimizing sales processes and costs, as well as modernizing the Hapag-Lloyd fleet. The company said it is currently in negotiations with several shipyards and will be ordering new ships in the coming weeks. But it noted that the merger has created a company with average vessel size of 5,271 TEUs compared with 4,717 TEUs for the top 20 ocean carriers. Hapag-Lloyd is scrapping or selling 16 of its “old ladies” — smaller, older, inefficient ships.
With the completion of the CSAV merger, trade to and from Latin America now accounts for 35 percent of the carrier’s transport volume.
Hapa-Lloyd is planning major changes to its services to the region.
Together with Hamburg Süd, CMA CGM, and China Shipping and other shipping companies, Hapag-Lloyd will be offering new products between Asia and the western and eastern coasts of Latin America from July onwards.
The companies will offer three loops between Asia and the West Coast of South American and two loops between Asia and the East Coast of South America. There will also be calls to the Pacific Coast of Mexico.
These services will employ over 50 ships in all with average vessel size of more than 8,000 TEUs, with Hapag-Lloyd contributing 20 of them. This includes CSAV’s seven efficient 9,300-TEU newbuildings. Five vessels from this series are already in service, with the final two set to be delivered in early May and June.
Habben Jansen said the next lane the company expects to look at is the trade between Europe and Latin America, noting that expanded Panama Canal will open next year. He said the company is considering investing in new tonnage for that trade, and that the decision about new ships will likely be made in the next couple of weeks.
Hapag-Lloyd said the start of 2015 has been satisfactory with business developing in accordance with expectations results that are significantly better than in 2014. “For 2015 as a whole, Hapag-Lloyd plans to achieve a clearly positive operating result.”
The company was able to reduce transport expenses by $32 per TEU in 2014. Habben Jansen said one area of concern was a $24-per-TEU rise in port, canal and terminal costs, noting that part of that increase was due to problems at ports on the U.S. West Coast, but also noted “this is generally a category where costs remain under pressure and in many cases we deal with state-owned entities and people that have quite a lot of pricing power.”
Speaking on a conference call with investors and analysts, Habben Jansen said container shipping remains a growth industry, pointing to company projections of 5.9 percent growth in container volume between 2000 and 2016 compared to 3.8 percent growth in GDP during the same period.
He also said the order book for the industry is “reasonably healthy” with the global orderbook amounting to about 18 percent of the operating fleet, even with the most recent orders by shipping companies included.
While freight rates are low on some trades, including from Asia to Europe and Asia to the East Coast of South America, he said rates have been stronger in the transpacific and transatlantic trades.
Hapag-Lloyd is part of the G6 Alliance with MOL, APL, OOCL, NYK and Hyundai Merchant Marine.
Habben Jansen said the G6 has made good progress in a “mid-term deployment plan and who needs to go and invest in what, in functioning of a global service center in Singapore which is helping with service reliability and in how decision making is made by the six carriers.”
“That gives us a lot of comfort going into the future,” said Habben Jansen.
Hapag-Lloyd consumes about 3.3 million tons of bunker fuel annually, but has seen the amount of fuel per slot drop dramatically to 3.7 tons per slot in 2014 from 5.78 tons per slot in 2009. The company said a $100-per-ton change in the price of bunker fuel sustained over a year could boost annual results by $300 million.
Haben Jansen said the company will get “some tailwinds” from the lower bunker costs in the first quarter of 2015. He said a little less than 20 percent of the fuel that Hapag-Lloyd will buy this year will be more expensive, low sulfur fuel, which is required in emission control areas of the coast of North Europe and the U.S. and Canada.
He believes “slow steaming is there to stay,” although he said if fuel prices remained where they are today for several years it would be hard to predict what might happen to ship speeds.
“The benefits of slow steaming are so significant, even at the current price level in this type of industry, it is very difficult to envision everyone will go back to steaming faster simply because in the end the customers are not willing to pay for it,” he said.
He added the major shipping alliances should help have a “stabilizing effect” on ship speeds now that most of them have consolidated their schedules.
Hapag-Lloyd reports ‘disappointing’ 2014
