With widespread complaints from shippers over the rise in freight rates, it is interesting to see how profitable container shipping lines are in the present environment. If the latest results from Hapag Lloyd are a guide, the answer is ‘not very profitable’.
Hapag Lloyd asserted in its just published annual results that it saw the “third-best Group profit in the history of our company” in 2023. However, this does seem to be a product of previous market conditions, as in the fourth quarter 2023 EBIT (Earnings Before Interest and Tax) fell into a US$251m loss, down from $3.3bn in the fourth quarter of 2022. Costs have fallen since the extraordinary conditions of 2022, however freight rates have also fallen. The result is that Hapag Lloyd’s core Liner business saw revenue in 2023 of $19.2bn compared to $36.38bn in 2023, and an EBIT of $2.7bn compared to $18.36bn. Profit margins for the year were 14.1%, down from an extraordinary 50.5%. The volume of containers handled increased by 0.5% year-on-year to 11.9m TEU.
The result for the whole company in 2023 was revenue falling 47% year-on-year at $19,391m and Group Profit down 82% at $3,191m. One number that was worth paying particular attention to was the return on capital, which was 15.6% in 2023, down from the 114% seen in 2022 but very much better than that of 3.7% in 2018.
Looking at these results, which admittedly only go up to the end of 2023, Hapag Lloyd is not profiting from the Red Sea crisis. It appears that contract rates did not reflect the leap in spot market rates in Q4 2023, with rates still being 54.7% lower than in Q4 2022, a quarter-on-quarter fall of 9.3%. It will be interesting to see if this continues to be the case in the first quarter of 2024.
Certainly, the management of Hapag Lloyd seem nervous about the prospects for the present year. Rolf Habben Jansen, CEO of Hapag-Lloyd commented that despite the respectable profit seen in 2023 “the economic and political environment continues to be volatile and challenging – especially in view of the current situation around the Red Sea. We therefore expect to see an overall decrease in earnings in 2024”. These results underline the fact that present market conditions are very different from 2022.
Author: Thomas Cullen
Source: Ti Insight
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