UASC losses are heavy but not so unusual


That the container shipping sector is not very profitable can hardly come as a surprise, however attention has been drawn to a chart from the Paris based consultancy Alphaliner, estimating that the United Arab Shipping Company (UASC) saw an operating loss of US$299m in 2015, representing a negative operating margin of 9.1%. The numbers were revealed as part of the acquisition process of Hapag-Lloyd.

The losses are not so surprising set alongside the expansion in the UASC fleet, which Alphaliner describes as doubling between 2014, from 278,000 TEUs to 541,000 TEU today as UASC embarked on a series of purchases of ultra large vessels.

Yet putting aside the question of the implications of such losses for Hapag-Lloyd’s shareholders, the wider profile of container shipping line profitability from Alphaliner does provide an interesting perspective on the consolidation of the sector.

In 2015 at least, the most profitable shipping lines tended to be the largest shipping-lines. Maersk and CMA GGM occupied the second and third slot with margins of 6% and 5.8% respectively, OOCL fourth and Hapag-Lloyd itself in sixth position. However, the experience in the first-half of 2016 has been that Hapag-Lloyd and Maersk have seen a significant deterioration in profitability so the position is not only more complicated but worse.

What the graph does highlight is that the smaller and medium sized lines are suffering more than the largest networks. Some, such as the Intra-Asian specialist Wan Hai or OOCL, are making decent returns of 5-6% illustrating that an effective market strategy can deliver results even in such a hostile climate, whilst ZIM has returned from the dead to post a 3.9% margin, many others have not. K-Line, APL, NYK, MOL, COSCO and others all made operating losses in 2015.

For whatever reason it appears that economies of scale are still essential to the container shipping business and that the sector will need to continue to consolidate. However, one question does arise. What will happen to that half-million TEUs of capacity that will enter the Hapag-Lloyd fleet from UASC? Perhaps it will only enable Hapag-Lloyd to make life even more intolerable for the smaller lines if the German carrier’s balance-sheet can bear it in the short-term.

More Insight?

Source Transport Intelligence, August 30.2016

Author: Thomas Cullen