Although revenue growth was just 3% year-on-year at $14.1bn and container volumes were up only 1.4%, operating profit jumped 84% year-on-year to $867.8m, helped by accounting revisions to the previous year’s results but complicated by higher depreciation charges. Earnings Before Interest and Tax (EBIT) were up 73% at $908.3m whilst a stable interest burden meant that the increase in operating profits went directly to the bottom line, with Group profit leaping to $417m, a 670% rise. The new IFRS rules concerning leasing costs seems to have flattered the results.
Fuel played a role in Hapag Lloyd’s result. Overall spending on fuel was down by 7%, but this is a complex number in an environment of changing fuel regulations. Other operational costs also had an effect with areas such as vessel costs haulage costs falling noticeably, although this was offset by higher depreciation in areas such as the container fleet.
Freight rates were reasonable, with an increase over the year of 2.7% whilst the overall growth in container volumes was a very moderate 1.4%, with the highlight being a 2.8% growth in intra-Asian trade.
Overall Hapag Lloyd is deleveraging financially, although the COVID-19 crisis is encouraging an emphasis on cash. Of course, the extreme movements in monetary policy may have effects here, and with interest rates crashing to zero the optimum level of debt may change.
Furthermore, the COVID-19 issue makes future prospects well-nigh impossible to estimate. Before the crisis Hapag-Lloyd was optimistic that less capacity entering the market would have supported freight rates. It might be possible that unless the global fleet is shrunk rapidly and quickly there will be a collapse in rates possible followed by a violent correction upwards driven by the restocking behaviour.
Source: Transport Intelligence, March 26, 2020
Author: Thomas Cullen
GLOBAL SUPPLY CHAIN INTELLIGENCE (GSCi)