Hapag-Lloyd hit by downward spiral in freight rates

Friday, 10 May 2024

The collapse in freight rates pushed nine-month profits at Hapag-Lloyd down almost 80 per cent as the leading German container shipping group cut its full-year guidance on a continuing gloomy outlook.

Container shipping companies, whose performance is seen as a bellwether for global trade, have reported tumbling revenues and profits amid falling freight rates as vessel supply outstrips demand.

The Hamburg-based company said average freight rates in the quarter ending September stood at $1,312 per 20ft equivalent unit, compared with $3,106 in the same period last year. Costs on the other hand had increased 30 per cent since 2019, it said.

“If you look at [freight prices] especially in the Far East and Atlantic, those are not covering the costs of moving boxes from Asia to Europe,” said Hapag-Lloyd’s chief executive Rolf Habben Jansen, adding that rates were “very unsustainable”.

The worsening economic outlook is not the only phenomenon that has dented the global shipping industry. Authorities in Panama last week announced that the number of ships allowed to cross the country’s canal would be slashed, as climate change had brought about a drought that threatened the nearly 110-year-old canal.

“Drought in Panama is a real problem,” Habben Jansen said, warning that capacity was likely to be down by 30 to 40 per cent next year. “We’ll have to find solutions,” he said, adding that the company would be rerouting some ships via the Suez Canal.

Net profits for the nine months to September totalled €3.2bn, while earnings for the third quarter plunged 95 per cent from the year before to €264mn.

The group cut its full-year profit outlook owing to a continued slide of freight rates in the third quarter, and now expects earnings before interest and tax to total €4.1bn-€5bn compared with €17.5bn in 2022.

“If spot rates do not recover, we could face some challenging quarters in this subdued market environment,” Habben Jansen said.

Shipping companies generated record profits during the pandemic. In the first six months of 2021, Hapag-Lloyd reported higher earnings than it had in the previous 10 years as a whole. Spot rates for shipping containers were at that point above $20,000 a 40ft container.

Hapag-Lloyd said it had slashed services on several routes to save costs, but unlike rival Maersk, which last week announced 10,000 job cuts, said lay-offs were not on the table.

Hapag-Lloyd’s share price was up nearly 5 per cent on Thursday morning, despite the gloomy outlook, after a decline of nearly a third in the past month.