Hamburg Sud concerned about rising costs

Hamburg Sud concerned about rising costs    Klaus Meves, chairman of Hamburg Sud, said at the German shipping group’s annual press conference Thursday in Hamburg that shipping lines are facing rising costs from more expensive vessel charter rates, fuel, port operations and prices for new containerships. Due to the worsening shortage of ships in the charter market, "charter rates reached all-time highs," the company said. This means that the cost basis of the shipping companies reliant on charter tonnage "deteriorated considerably," according to the company, which operates 23 owned boxships and 59 chartered ones. In addition, the ships’ owners are attempting to stretch time-charters out over ever longer periods, thus steadily heightening the risk potential for the liner operator," Hamburg Sud said. Meves also warned of the impact of rising bunker prices, saying there has been in recent months a large increase in fuel prices, which currently stand at more than $200 per ton. The German shipping executive reportedly predicted that Hamburg-Sud’s fuel bill could rise by as much as $100 million this year. On new vessels, Hamburg Sud said newbuilding prices have increased "by up to 50 percent within the last 12 months."
The shipping line also cited the negative impact of port and inland congestion delays and higher empty container repositioning costs due to the widening cargo imbalances. "In order to counteract rising costs, the shipping group will continue to pursue its policy of sustainable rate restoration and, in addition, further optimize its internal and external structures so as to continuously improve its service to its customers, as well as its cost position," Hamburg Sud said.
Hamburg Sud traditionally does not disclose its profit results, but it said its results for 2004 "far exceeded" those of the previous year. The company’s revenue from container shipping, bulk shipping and other activities rose 44 percent in 2004 when expressed in dollars, to $3.2 billion. In local currency, revenue was up 31 percent to 2.6 billion euros, due to the weaker dollar exchange rate.
The company’s dominant container shipping arm saw its revenue rise 43 percent to $2.5 billion in 2004, with container traffic up 24 percent to 1.4 million TEUs. It reported that freight rates in 2004 "recovered from the low level of the previous year."
Compared to other ocean carriers, Hamburg Sud gave a more negative assessment of the container shipping industry’s prospects for 2006, when the global fleet of containership is expected to expand by more than 12 percent. Commenting on 2006, the company said: "It is impossible to say at the present time whether international shipping will experience a ‘dip’ of limited duration or a deeper slump."
The German company expects for-charter container shipping capacity to expand about 15 percent in 2006. "In the second half of the year especially, there will be substantial inflows of new large container ships of over 6,500 TEUs for the Far East trades," the German shipping group said. "From today’s vantage point, it is uncertain whether the additional capacity entering service will be absorbed by continuing cargo growth, especially of the Asian economies, or whether there will be overcapacity, possibly leading to a slump in charter rates and a decline in newbuilding prices."
This year, though, Hamburg Sud expects similar market conditions to those of 2004. It cited growth forecasts for the world economy of 4 percent for this year, below the growth of 5 percent in 2004. But "there are no expectations of substantial slumps," Hamburg Sud said. "This also holds true in respect of the national economies of South America and Asia, which are of particular importance for Hamburg Sud."
Hamburg Sud shares the view that infrastructure congestion will continue this year in several regions.
"Strong volume growth is causing delays in load and discharge operations and schedule disruption worldwide, above all in the ports on the U.S. West Coast, in Brazil and in some European ports," the company said. "The infrastructure in the hinterland of the USA and Europe (rail, truck, barge), especially during seasonal peaks, continues to come under extremely heavy pressure, meaning that additional cargo volumes cannot be handled trouble-free."
These conditions cause delays in transportation, as well as additional costs for rerouting and in equipment positioning inland, the shipping company noted.
Hamburg Sud is the parent company of Alianca and operates in most of the north/south container trades.