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Hapag-Lloyd slumps to loss    15/05/2018
The world’s fifth-largest container line, Hapag-Lloyd, saw its profit margin squeezed between weaker freight rates and escalating fuel costs in the first three months.

Hapag CEO Rolf Habben Jansen.

Hapag CEO Rolf Habben Jansen. Credit: Damco

The Hamburg-based group on Monday posted a EUR34.3 million (USD41 million) net loss for the first quarter, only slightly improved from a EUR58.1 million loss during the corresponding period last year.

The figures are not directly comparable, though, since the latest results already include the effects of the takeover of United Arab Shipping Company (UASC) in May last year. Integration of UASC into Hapag-Lloyd is meant to generate USD435 million in synergies per year by 2019.

Although much of the integration is already completed, the benefits were not enough for the group to maintain profitability during the first quarter, which is always challenging for container lines due to seasonal weakness in global cargo flows. "We have had a solid start into the current year, but the market environment is challenging,” commented the carrier’s chief executive officer, Rolf Habben Jansen. “Freight rates have been under pressure, bunker costs and trucking cost in some important markets were up, and we faced a weaker US dollar.”

The average rate for cargoes carried in the first quarter was down to USD1,029/teu, from USD1,056/teu 12 months ago. By contrast, bunker prices were up sharply from 313 USD/tonne to 372 USD/tonne. Shipping volumes for Hapag-Lloyd increased by almost 48% year-on-year to 2.86 million teu due to the integration of UASC.

In view of current market conditions, Habben Jansen struck a rather cautious tone, stating that the group expected a “gradual improvement” throughout 2018 which would only “hit the books in the second half of the year”.

Analysts are also more pessimistic about the short-term outlook for the container shipping market than they were at the start of the year. However, they expect firmer market conditions in the second half of the year, leading to a rally in freight rates and liner earnings in 2019 as net fleet growth slows.

Clarksons Platou Securities pointed out on Monday, “2Q 2018 is looking weaker than 1Q 2018 but there is an expectation of a jump in freight rates during the second half of 2018, which could accelerate in 2019, in our view.”

Hapag-Lloyd is still an attractive bet on the container ship market, with estimated earnings per share improving to EUR4.10 in 2019, possibly even higher, Clarksons Platou said.


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