Hapag-Lloyd still has the strength to be quite aggressive in a market downturn. Thomas Cullen, Chief Analyst for Ti Insight, reports.
Hapag-Lloyd’s results are often a useful insight into the container shipping market. The latest set of results from the Hamburg based shipping line for the first half of 2023 are an example. Revenue was down 49.8% year-on-year, whilst EBIT (Earnings Before Interest and Tax) fell by 82.7% year-on-year, all of which is roughly in-line with the trends seen elsewhere in the sector.
Of course, this is due to the falls in freight-rates over the past year. The statistics in Hapag-Lloyd’s presentation illustrate that the rates being charged by the company have almost halved since Q2 2023, with the average price then being US$2,935 per TEU, whilst in the third quarter of 2023 it was $1533. The year-on-year decline for the half-year has been 38%.
The good news as far as the shipping lines are concerned is that costs have fallen. Through 2021 and 2022 port and other logistics costs exploded due to congestion. The prices for some of these services have fallen-back violently in the past six months. ‘Handling and Haulage’ dropped year-on-year by 47% with the total of container costs excluding bunker fuel down by 30%, although it is worth noting that container repositioning costs have increased slightly, due according, to Hapag Lloyd, to “higher storage expenses for empty containers”, which might imply that the market is very well supplied with containers. Overall, the numbers of containers being transported in the first half of the year fell by 3.4% year-on-year.
Another useful number from Hapag Lloyd is that concerning the supply of new container vessels into the market. This has increased substantially over the past five years and now the ship tonnage on order represents a figure equivalent to 27% of the tonnage of the existing fleet. It is logical to extrapolate from these numbers that the market is unlikely to be short of ships in the near-term.
In line with market expectations these figures from Hapag-Lloyd strongly imply a continuing deteriorating market environment for container shipping lines. However, looking at Hapag Lloyd accounts it is clear that such a large provider is far from financially weak. Its reserves and its credit are strong and its margins are still high by historical standards. Such a company has the strength to be quite aggressive in a market downturn.
Author: Thomas Cullen
Source: Ti Insights
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