Thanks to its merger with UASC last May, Hapag-Lloyd has strengthened its presence on routes between Asia and North Europe, and now has the strong fleet it needs to prosper, according to Hapag-Lloyd CEO Rolf Habben Jansen.
German ocean carrier Hapag-Lloyd expects cost synergies resulting from its merger with United Arab Shipping Co. (UASC) last May will result in savings of around $435 million from 2019 onwards.
In Hapag-Lloyd’s annual report for 2017, released Wednesday, Rolf Habben Jansen, chief executive officer and chairman of Hapag-Lloyd’s executive board, said the savings will result from optimizing Hapag-Lloyd’s network structure, operating a combined fleet, jointly purchasing services and reducing overhead.
Hapag-Lloyd is expecting a significant increase in transport volumes this year as the UASC business activities will be included for a full year, whereas in 2017, they were included only from May 27 onwards.
Although UASC’s business is more heavily weighted toward the more competitive Far East and Middle East trade lanes, Hapag-Lloyd said that “assuming 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.”
However, Hapag-Lloyd did caution that it expects a “substantial rise in the average bunker consumption price in 2018.”
“Provided that the expected freight rate increase 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 substantial year-on-year increase in its EBITDA and EBIT in 2018,” the company said in the annual report.
Its assumption also takes into account the additional one-off expenses of $10 million related to the UASC merger and integration.
“As a result of the merger, we now have the necessary large vessels that are used on trades between the Far East and Europe,” Habben Jansen said. “The addition of these ships to the Hapag-Lloyd fleet means that we will not need to invest in newbuilds in the medium term. Furthermore, we have one of the youngest fleets in our industry with an average age of around seven years.”
Habben Jansen explained how Hapag-Lloyd has succeeded in integrating UASC, and that the merger has “enormously strengthened” Hapag-Lloyd’s presence on routes between Asia and North Europe. “We are also among the leading liner shipping companies in the Middle East,” he added.
Habben Jansen also said how the UASC merger strengthened “THE” Alliance, a vessel sharing agreement on major east-west trades that took effect April 1, 2017. With 244 ships representing 17 percent of global fleet capacity, THE Alliance connects 75 ports with 32 services, according to Habben Jansen.
The Alliance is comprised of Hapag-Lloyd; Yang Ming of Taiwan; and Japan’s “big three” ocean carriers, NYK, MOL, and “K” Line. Effective April 1, the new joint venture between NYK, MOL and “K” Line, dubbed the Ocean Network Express (ONE), will officially begin operations, but they will still remain members of THE Alliance.
A Prosperous 2017. Habben Jansen said Hapag-Lloyd performed well in 2017, pointing to its improved operating earnings before interest and taxes, which grew to 410.9 million euros (U.S. $507.2 million), a sharp increase from 126.4 million euros in 2016. The company also had a positive profit after taxes, which totaled 32.1 million euros, up from a loss of 93.1 million euros in 2016.
However, Habben Jansen said, “Success has not made us overconfident. We are well aware that our industry continues to find itself in choppy waters and that the major challenges still exist.
While the container shipping market remained competitive and bunker prices increased sharply in the second half of 2017, he said freight rates recovered from the low recorded in the first quarter of 2016.
Hapag-Lloyd’s average freight rate in 2017 hovered around $1,051 per TEU, a modest increase of 1.4 percent year-over-year. However, Hapag-Lloyd’s volumes surged 29 percent from 2016 to 9.8 million TEUs.
Habben Jansen said the company’s executive board is proposing that shareholders receive an extraordinary dividend of 100 million euros, or about 57 cents per share.
Executive Board Adjustments. Hapag-Lloyd also announced some changes in management responsibilities, driven by the increased size of the company after the merger with CSAV in 2014, in addition to last year’s merger with UASC.
Habben Jansen will also now be responsible for global sales activities.
Joachim Schlotfeldt will become a new member of Hapag-Lloyd’s executive board April 1, where he will take charge of human resources as labor director, as well as global procurement.
In addition, the current chief commercial officer, Thorsten Haeser, is leaving the company March 31 “on the most amicable of terms.”