Global container shipper Hapag-Lloyd records H1 loss of 122 million on higher operational costs

Date: Monday, August 13, 2018
Source: S&P Global

Global container shipper Hapag-Lloyd recorded a net loss of $122.3 million in H1 compared with a loss of $44.6 million a year ago as its bunker fuel expenses, charter rates and intermodal cost increases were more than originally expected, it said.

Bunker fuel prices rose by as high as 23% year on year to $385/mt in the first-half of this year, the group said in its half yearly investor report on Friday.

"The first-half of 2018 was shaped by clearly increasing fuel costs, higher charter rates and a slower than expected recovery of freight rates," Hapag-Lloyd CEO Rolf Habben Jansen said.

"In response to that, we have implemented additional measures to recover these costs: we are critically reviewing the economic viability of our ship systems and are further optimizing our terminal contracts, to gain additional relief on the cost side," he added.

When asked during the conference call if it had recovered some of its increased operational costs, Habben Jansen said the company had been "fairly successful" in pushing through bunker surcharges and made "a pretty good recovery from that charge".

"We also see that the average freight rate going into the third quarter is better than what it was coming out of the second quarter, so some of that additional costs are now increasingly passed on to the customer," Habben Jansen said.

The company is also undertaking various initiatives to drive digitization in order to respond quickly to unforeseen market conditions as well as changes, he added.

Meanwhile, Hapag-Lloyd is also gearing up for the International Maritime Organization's global sulfur limit rule for marine fuels.

The IMO rule will cap sulfur in marine fuels at 0.5% worldwide from January 1, 2020, from 3.5% currently. This applies outside the designated emission control areas where the limit is already 0.1%.

MEETING IMO REGULATIONS

From the beginning of next year, Hapag-Lloyd will trial scrubbers on some of its vessels.

"Today, only very few large containerships have scrubbers installed and because of that we would like to try it on a couple of vessels and after that possibly roll it out to two more ships," Habben Jansen said.

He added that the company is also looking at the possibility of converting one of the LNG-ready ships that was bought by UASC.

"Depending on the outcome, we may decide to convert the other 16," Habben Jansen added.

Hapag-Lloyd merged with United Arab Shipping Company in May last year, integrating UASC's 58 vessels including 17 LNG-ready ships, into its fleet.

These "LNG-ready" ships have engines that can burn LNG as well as fuel oil.

"All in all, industry experts guess that the new fuel regulations will cost the shipping industry about $60 billion per year," Hapag-Lloyd said on its website on August 1.

Last Friday, Habben Jansen reiterated that higher bunker fuel cost arising from IMO's regulation was inevitable.

"There is going to be a huge jump in fuel price...the jump is so big that nobody can afford to absorb it because the additional cost of having to pay $250/mt extra is simply so big," Hapag-Lloyd's CEO said.

"I also believe that because it's something coming from a long time, people can adjust for it, plan for it, which is something very different from looking at your own [bunker] price, which can fluctuate from one week to another quite significantly," he added.

When asked if slow steaming could offset some of the higher bunker fuel cost, Habben Jansen said that slow steaming might reduce bunker costs marginally.

"It may help bring down bunker consumption per TEU by 5-10%, but that's not enough to recover the costs. In the end, you will need to charge additional money for the increased fuel cost," he said.

Oil industry experts estimate 0.5% sulfur "Low Sulfur Fuel" will be $150-$250/mt more expensive than the current 3.5% sulfur "Heavy Fuel Oil", Hapag-Lloyd said in a report published August 1.

Low sulfur fuel oil bunkering will have to start in the fourth quarter of 2019 due to the long round voyage times, and time needed to shift to compliant fuel in the tanks. This will mean higher costs for customers by the end of next year, Habben Jansen said.

As of June 30, the shipping company had 226 vessels, of which 98 were owned, and 114 were chartered, while 14 were leased.

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