Liner operator looks to better service offering for growth and sees slightly better supply-demand balance for 2019.
Hapag-Lloyd (FSE: HLAG) said the container ship industry is about as concentrated as it will ever be, with the emphasis now being focused on service quality, not size.
The fifth largest container ship company in the world with transport capacity of 1.6 million twenty-foot equivalent (TEU), the German company still only has just over 7 percent market share on a stand-alone basis, after its buyout of United Arab Shipping Co.
But Chief Executive Officer Rolf Habben Jansen said it will be difficult to grow much further through acquisition as the top 10 ocean carriers now hold 80 percent share of the market.
“Further consolidation in the sector is less attractive due to decreasing incremental scale benefits,” Jansen said in a letter to shareholders. “As a result, the likelihood of further consolidation amongst the largest players in the industry is low, meaning the industry has reached a turning point.”
The strategy going forward will be for further cost cuts, Jansen said, with the company targeting annual savings of $350 million to $400 million from 2021 onwards. It plans to do so through optimizing its sailing schedules, partnering on terminals and savings on stores and supplies procurement.
As for growth in the market, Jansen said he wants Hapag-Lloyd to be able to deliver a higher service level than its peers, which will help differentiate the company in the commodity ocean freight sector and help drive top-line growth.
“We firmly believe that our customers are prepared to pay for added value and that our industry needs to change,” Jansen said. “It is about being commercially effective through eve greater differentiation in the market and creating added value for our customers through unparalleled reliability and service quality.”
Part of the cost savings drive will include further automation of ocean freight booking and management. It said that it now processes about 6 percent of its volume, about 15,000 TEU per week, via a web interface with a goal toward reaching 15 percent of its volume done online by 2023.
As for 2019, Hapag-Lloyd expects volume growth of 4 percent, flat with 2018. Last year’s volume of 146 million TEU fell below expectations due to the U.S. trade war and weaker emerging markets economies. It forecast that volume growth will accelerate to an average of 4.8 percent from 2019 through 2023, with most of the growth in the Middle East and Indian subcontinent trades.
The supply-demand balance will tip slightly in favor of ocean carriers, with a 2.5 percent rise in capacity expected, the company said, with another 0.5 million TEU set for 2019 delivery. That should bring total capacity to 22.4 million TEU.
But supply growth is accelerating with another 1.2 million TEU worth of boxships now on order. Further, the increasing size of those ships means that capacity will be lumpy throughout the year, with a potential hit on rates as new ships hit the water.
“As additional larger ships with a transport capacity of more than 15,000 TEU go into service, transport capacities increase sharply, negatively affecting the development of freight rates in all trades,” Hapag-Lloyd said.
As for the looming rule that will limit the sulfur emissions from marine fuel to 0.5 percent, Hapag-Lloyd said the price difference of $250 per metric ton, or approximately 60 percent higher than current marine fuel prices, “will have to be passed on to customers” through new fuel surcharges.
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