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Higher fuel, charter costs pull down container line earnings   16/05/2018
Container lines are off to a slow start in 2018 judging by the first-quarter reports from Hapag-Lloyd, Hyundai Merchant Marine (HMM), and Yang Ming, which are facing sharply rising bunker fuel prices, a weak spot rate market, and higher charter costs.

A Hapag Lloyd ship.

Hapag-Lloyd CEO Habben Jansen predicted a gradual improvement in the market through 2018, although he expected the benefits to his carrier would only be felt in the second half of the year. (Above: A Hapag-Lloyd ship passes under the Golden Gate Bridge in San Francisco.) Photo credit:

Hapag-Lloyd and Yang Ming managed to reduce their net losses but that wasn’t enough to move them into the black. The rising costs are also expected to influence the first-quarter results of Maersk Line — scheduled to be released on May 17 — with investment bank Jefferies forecasting the Danish carrier will report its net profit “just ahead of breakeven.”

Ocean carriers earned $7 billion in 2017

The container shipping industry last year had a collective operating profit of $7 billion — the highest rate since 2014, according to Drewry. By the third quarter, Hyundai Merchant Marine (HMM) was the only carrier that had not returned to profitability, Drewry said in a May 2 webinar.

Hapag-Lloyd’s first-quarter performance included the figures of United Arab Shipping Company (UASC) that the Hamburg-based shipping line merged with in late 2017, making year-over-year comparisons difficult. The operating result before interest and taxes (EBIT) was $64 million and the net result was a loss of $41 million.

“We have had a solid start into the current year, but the market environment is challenging,” said Rolf Habben Jansen, chief executive officer of Hapag-Lloyd. “Freight rates have been under pressure, bunker costs and trucking cost in some important markets were up and we faced a weaker US dollar, whereas higher transport volumes and synergies supported the result.” Through April, the average price per ton of IFO 380 bunker fuel across the ports of Rotterdam, New York-New Jersey, and Shanghai has risen 21.6 percent from the start of 2017 to $387.48, according to IHS Markit data.

UASC helped revenue reach $3.2 billion in the first quarter, up 42 percent, and volume hit 2.9 million TEU. However, average freight rates fell 2.6 percent to $1,029 per TEU, a clear indication of a weak market burdened by excess capacity.

Yang Ming reported a widening first-quarter loss despite increasing revenue and volume in the first three months of the year. The Taiwan carrier’s 1.22 million TEU in the first quarter was 9 percent more than in the same period of 2017, and revenue was up 2.6 percent to just over $1 billion year-over-year.

HMM’s net loss in the first quarter widened to KRW175 billion ($164.94 million) from a loss of KRW131 billion last year.

Despite first-quarter container volumes rising slightly from the same time last year to 980,511 TEU, HMM said weak freight rates and higher operating costs eroded its profit margins. Bunker prices, on the same comparison, rose from $314 per metric ton ($346 per ton) to $373 per metric ton.

“We’re expecting an increase in volumes as we enter the high season in the second and third quarter. Costs saved by reduced port facility fees via joint operation rights of HPNT [Hyundai Pusan Newport Terminal] and new customers will likely improve the business results to come,” HMM said.

CEO Habben Jansen: gradual market improvement, felt in second half 2018

CEO Habben Jansen also predicted a gradual improvement in the market through 2018, although he expected the benefits to his carrier would be felt only in the second half of the year. This positive outlook was shared by Jefferies, which said in a note to customers that the heavily imbalanced supply and demand of the past was changing.

“We continue to believe the container shipping sector is set to benefit from a rapidly improving market balance, with capacity growth projected to peak at 9 percent in the second quarter, after 8 percent growth in the first quarter, followed by a slowdown to low-single digit capacity growth for the period 2H18E-FY21E, based on today's record-low order book,” the bank said in its latest market outlook.

Global container fleet capacity is expected to grow 4.7 percent this year, as global trade volumes rise 4.9 percent in 2018, according to the IHS Markit Trends in its World Economy and Trade forecast.


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