Hapag-Lloyd CEO: Market Is Still Challenging

German shipping company Hapag-Lloyd managed to shrink its net loss in the first quarter of this year, however, market headwinds persist, the company warns.

The company’s net loss for the period stood at EUR 34.3 million (USD 41 million), almost halved when compared to the last year’s loss of EUR 58.1 million.

Earnings before interest, taxes, depreciation and amortization (EBITDA) reached EUR 219.4 million, also up from last year’s EUR 135.3 million.

However, as the figures for the quarter include the contribution from the United Arab Shipping Company Ltd. (UASC), which merged with Hapag-Lloyd last year, the comparison of the figures can be made on a limited basis, the company stressed.

We have had a solid start into the current year, but the market environment is challenging. Freight rates have been under pressure, bunker costs and trucking cost in some important markets were up and we faced a weaker US Dollar, whereas higher transport volumes and synergies supported the result. We expect a gradual improvement of the market throughout 2018 – but most of that will only hit the books in the second half of the year,” said Rolf Habben Jansen, Chief Executive Officer of Hapag-Lloyd.

Jansen’s mandate as the company’s CEO has been extended for additional five years.

The company’s executive board said that earnings for the period were below expectations, primarily as a result of the significant increase in bunker prices and a changed cost structure due to the new service network.  Volatile freight rates and stiff competition are not making things easier moving forward.

Growth has been reported in revenues and transport volume, with revenues increasing from EUR 2.1 billion to EUR 2.6 billion. Transport volume rose by 47.9 pct in the first three months of the year, particularly due to UASC, the company said.

The average freight rate of 1,029 USD/TEU in the first quarter 2018 was in line with the last year’s freight rate of 1,056 USD/TEU, reflecting the competitive market environment.

“Assuming that the general recovery of freight rates continues, Hapag-Lloyd’s average freight rate in 2018 is likely to be around the same as in the previous year,” the company said, adding that a clear rise in the average bunker consumption price is expected in 2018.

“Provided that the expected freight rate is achieved and a significant portion of the synergies from the merger with UASC are realized, along with the expected improvement in the quality of earnings and the anticipated growth in volumes, Hapag-Lloyd is forecasting a clear year-on-year increase in its EBITDA and EBIT in 2018.”

This also takes into account the one-off expenses of around USD 10 million resulting from the merger and integration.