Hapag-Lloyd reports improved first-quarter results

The German carrier points to a lower net loss and increases in operating profit, revenue and cargo volume following the UASC acquisition.    Hapag-Lloyd had a lower net loss of $42.2 million on revenue of $3.22 billion in the first quarter of 2018, compared with a net loss of $61.8 million in the first quarter of 2017 when it had revenue of $2.27 billion. (The company reported its earnings in dollars using a average dollar to euro conversion rate of 1.23  for the first quarter of 2018 and 1.07 for the first quarter of 2017.
   Earnings before interest and taxes (EBIT) or operating profit was higher,  $66.1 million in the first quarter of 2018 compared with $8 million in the first quarter of 2017. Earnings before interest, taxes, depreciation and amortization (EBITDA) was $269.8 million in the first quarter of 2018 versus $144.1 million in the first quarter of 2017.
   The company carried 2.86 million TEUs in the first quarter of this year, 47.9 percent more than the 1.93 million TEUs transported in the first quarter of 2017.
   Hapag-Lloyd noted the figures of the first quarter 2018 include United Arab Shipping Company Ltd. (UASC), which it acquired last May, while the figures for last year do not. On a pro forma basis, as if UASC was part of Hapag-Lloyd on Jan. 1, 2017, cargo volumes would have been up 2.5 percent.
   “We have had a solid start into the current year, but the market environment is challenging,” said Rolf Habben Jansen, chief executive officer of Hapag-Lloyd. “Freight rates have been under pressure, bunker costs and trucking costs in some important markets were up, and we faced a weaker U.S. 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,” he added.
   Hapag-Lloyd said its average freight rate in the first quarter this year was $1,029 per TEU, compared with $1,056 per TEU in the first quarter of 2017. But on a pro forma basis, rates would have increased 7.1 percent.
   The merger with UASC is “a key strategic step towards strengthening Hapag-Lloyd’s market position and competitiveness, “ the company said, adding that “synergies from the merger with UASC will contribute approximately $435 million per annum from the 2019 financial year onwards.” The company’s executive board expected up to 90 percent of the synergies can be achieved this year.
   Habben Jansen said the company is evaluating what changes to make in its fleet to prepare for new sulfur regulations that go into effect on January 1, 2020. The International Maritime Organization is requiring ships to reduce the amount of sulfur in ship exhaust by lowering the maximum sulfur content in fuel from 3.5 percent to 0.5 percent in most parts of the world on that date, or for ships to have exhaust cleaning systems called “scrubbers” installed. (In some “emission control areas,” such as along the coast of the U.S. and Canada, Caribbean, Baltic Sea, North Sea and English Channel and even stricter limit of O.1 percent will remain in place.)
   Carriers have three options to comply with the regulations, he noted: use LNG, which does not container sulfur, as fuel, install scrubbers, or use compliant, low-sulfur fuel. He said Hapag-Lloyd is evaluating all three options and may use a combination of all three. The company has 17 ships that were built by UASC, that currently use bunker fuel but are “LNG ready.”
   Habben Jansen said the cost of converting a ship to LNG is $20 million to $25 million, and the cost of installing a scrubber is $7 million to $10 million, depending on size.
   He said while some conversions and installations might be made in 2019, but that the majority of the work would be done 2020-2022.
   The higher cost of low sulfur fuel will have to be passed on to customers, he said.
    “The increase in the fuel cost will be so significant that it is simply not possible for anyone to absorb that,” said Habben Jansen. “And we will just have to pass that on to the customer, who will also most likely understand that..”
   He did not think the expected higher cost of bunker fuel is likely to result in even more slow steaming by carriers, but said that could not be entirely ruled out. He said that most ships are are performing at their best and going much slower would not result in a material savings in bunker fuel and would require carriers to increase capacity.