SHIPPING INDUSTRY

Hapag-Lloyd Re-Enters Troubled Waters

ARCHIV - Das Containerschiff "Tsingtao Express" der Reederei Hapag-Lloyd fährt am 20.10.2011 auf der Elbe von Hamburg kommend in Richtung Nordsee. Die deutschen Reeder müssen ihre Unternehmen bereits im achtenn Jahr durch die Schifffahrtskrise steueren. Foto: Christian Charisius/dpa +++(c) dpa - Bildfunk+++
Hapag-Lloyd has veered off financial course.
  • Why it matters

    Why it matters

    The container shipping industry is struggling with a sluggish global economy, overcapacity and low freight price.

  • Facts

    Facts

    • Hapag-Lloyd’s financial results dropped by €300 million compared to the same period last year, resulting in a €142 million loss.
    • Hapag-Lloyd had just turned a €114 million profit in 2015 after suffering a record loss of €602 million in 2014.
    • The Hamburg-based container shipping group has signed a merger agreement with the United Arab Shipping Company that’s expected to bring €400 million in cost synergies.
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    Audio

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They were supposed to have turned the corner last year. It turns out that Hapag-Lloyd has sailed right back into tough waters at the start of this year.

Hapag-Lloyd’s financial results have plummeted by €300 million ($330 million) in the first half of 2016 compared to the same period last year, resulting in a net loss of €142 million.

“The half year results are disappointing,” said Chief Executive Rolf Habben Jansen.

Analysts at the German bank NordLB have singled out Britain's decision to leave the European Union as one of the main drags on the shipping business.

Hapag-Lloyd has been navigating choppy waters for years. In 2014, the shipping company posted a record loss of €604 million. The rating agency Moody’s refused to recommend Hapag-Lloyd as a reliable investment and branded the company as “highly speculative” with a B2 rating.

In November of 2015, Hapag-Lloyd was forced to dial back expectations for its initial public offering. The shipping company pulled in €300 million, far less than the €500 million originally planned.

Still, the end of 2015 brought some decent news. After merging with Chilean shipping company CSAV in 2014, however, Hapag-Lloyd managed to turn its ship around and post a profit of €114 million last year.

The weak start to the year therefore represents a serious setback. To boost its fortunes again, Hapag-Lloyd is counting on another merger.

In July, the German-Chilean company inked a deal with the United Arab Shipping Company. The merger will boost Hapag-Lloyd’s fleet to 237 ships and secure its place as the world’s fifth largest container shipping company.

Hapag-Lloyd also expects annual cost synergies of €400 million starting in 2019 and a stronger position in the Middle East. The United Arab Shipping Company is backed by Gulf investors, including Qatari and Saudi sovereign wealth funds.

But skepticism of the merger remains. Hapag-Lloyd will acquire 14 mega ships as part of the merger, which it will pay for by increasing its debt by about €4 billion, as Moody’s calculated.

Moody’s expert Maria Maslovsky expects net debt to increase from 4.3 to 6.7 times operating profit, prompting the rating agency to drop its outlook for the company’s credit rating, from “positive” to “stable.”

Nor is the broader container shipping industry, which has struggled mightily ever since the financial crisis, expected to see a major turnaround any time soon.

Analysts at the German bank NordLB have singled out Britain’s decision to leave the European Union as one of the main drags on the shipping business. It’s unclear whether or not the world’s fifth largest economy will retain access to the E.U. single market.

The shipping industry also faces the long-standing problem of overcapacity, which has pushed down freight costs. The average price of a transport container has dropped to $1,042, about a fifth of last year’s price.

According to Drewry Shipping Consultants, this could result in an overall loss of $5 billion for the shipping industry in 2016.

Christoph Schlautmann has been working in the Handelsblatt Düsseldorf office since 2000. To contact the author: schlautmann@handelsblatt.com.

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