The shipping sector is supposed to be in the eye of the storm, with falling freight-rates and demand. Hapag Lloyd has seen profits halve but it is still making money.
The latest numbers from the Hamburg-based shipping line for the first quarter of 2023 superficially appear alarming. Revenue fell 33%, Earnings Before Interest, Depreciation and Amortisation (EBITDA) fell by 55% and group profit was down by 57% year-on-year. These results were driven by a 5% fall in the number of containers handled and a 28% fall in average freight-rates as compared to the same period last year.
However, this deterioration in profits and sales still left Hapag Lloyd with an EBITDA of US$2.4bn which represents a margin of 39.5%. This contrasts with an EBITDA margin of 59.3% in the first quarter of last year. Bearing in-mind that the container shipping sector has, on occasions, struggled to deliver a profitability that covers the costs of capital, such margins are notable.
In terms of demand, the largest falls were seen on the Europe-Asia routes, which saw a year-on-year decrease in volume of 19.7%, but the Trans-Pacific route fell only by 2.7% whilst Intra-Asian container volumes were up by 3.7%.
The real changes were in freight-rates, which halved on the Intra-Asian trades and by 42.6% on Trans-Pacific routes. Admittedly, the falls in freight-rates represent a return to earth from extraordinarily high levels, so perhaps not too much ought to be read into them. However, the implication of these results is that, even if freight-rates continue to fall, Hapag-Lloyd will not be greatly financially stressed.
The situation was fairly accurately described by Rolf Habben Jansen, CEO of Hapag-Lloyd AG, who commented that “despite declining results, we have made a robust start to the current financial year. The market environment has normalised, with corresponding declines in demand and freight rates.”
The lesson that buyers of container freight might take from these results is that unless huge volumes of new shipping capacity enter the market, a company such as Hapag Lloyd is still in a fairly strong negotiating position when discussing rates for container shipping.
Source: Ti Insights
Author: Thomas Cullen
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