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Hapag Lloyd's Journey into the Unknown

  • Why it matters

    Why it matters

    Hapag Lloyd, the world’s 5th largest shipping company, has once again reported losses for 2016, making a planned merger with Dubai-based UASC it’s greatest hope for survival.

  • Facts


    • Hapag made the disappointing announcement that its operating results (EBIT) had tripled to some €126 million ($136 million) compared to last year.
    • In 2016, Hapag incurred total losses of €97 million ($105 million).
    • The container shipping industry has struggled the past few years as it faces an oversupply of shipping capacity, weighing on freight rates.
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A Hapag Lloyd container ship is loaded at the shipping terminal Altenwerder in the harbour of Hamburg
The Hamburg-based company is not faring so well. Source: Reuters

This year, Hapag-Lloyd has regularly been the bearer of bad news, albeit in a piecemeal fashion. Ten days ago, the company warned that their merger with Dubai-based competitor UASC would be postponed until the end of May. Banks had used the planned change of ownership to cancel various lines of credit, and the search for new lenders caused delays.

Before that, Hapag had made the disappointing announcement that its 2016 operating result, or earnings before interest and tax, was only €126 million, or $136 million, a third of what it was a year earlier. While these earnings did not even cover the interest cost of the debt-ridden shipping company, many observers had already suspected the announcement that came last Friday: Hapag incurred total losses of €97 million last year.

Effectively, the merger with UASC, seen as a necessity to cope with the shipping industry’s overcapacity, reversed Hapag Lloyd’s recovery. It had first been able to again write black numbers in 2015 afters losses the preceding four years. A slump of shipping rates since the 2008-2009 financial crisis had hurt many shipping firms and led to bankruptcies.

Hapag Lloyd’s small-cap listed shares fell as much as 4.6 percent on Monday and traded down 3.7 percent at €27.89 by 3:11 P.M. in Frankfurt.

CEO Rolf Habben Jansen will have a lot to answer for at today’s press conference regarding the company’s relapse into the red. He has promised $435 million in synergies from combining the Hamburg-based shipping firm with UASC. The merger will, however, come with one-off costs of around $150 million.

27 p16 Hapag Lloyd-01

The deal also carries risks. Because UASC will receive 28 percent of Hapag-Lloyd in exchange for the introduction of their fleet, the holdings of current shareholders will be diluted. Additionally, UASC is a loss maker. In 2015, the company announced losses of $384 million, and in the first half of 2016 business was even worse. On top of it all, the company is also bringing $4.06 billion of debt into the merger.

This will add to €3.6 billion of net debt held by Hapag Lloyd at the end of 2016. This is almost 6 times higher than its operating result before interest, taxes and write-offs, or EBITDA.

Comparatively speaking, things aren’t that bad. In 2016, Denmark’s listed market leader Maersk, as well Tokyo-based shipping companies NYK, MOL and K-Line, all reported negative operating results (EBIT).

Hapag’s shareholders, however, will not be pleased about the company’s canceled dividend. Due to the 2016 loss shareholders will not receive any payouts. The cancellation, however, will hit the city-state Hamburg especially hard. Through investment firm HGV, the port city owns some 20.6 percent of the Hapag’s shares. In 2008, the Hamburg senate had invested capital in the company in order to prevent a takeover by foreign competitors. However, after the flotation in November 2015, only some €700 million in share value remained of the initial €1.15 billion investment of taxpayer money.

City officials are seriously concerned: “The corporate losses make clear that Hapag-Lloyd has a long way to go,” warned Michael Kruse, senate speaker on economic policy for the Free Democratic Party (FDP). For Mr. Kruse, the senate still has to firm up the delayed merger with UASC before the deadlines run out. “Otherwise, Hapag-Lloyd will fall behind in terms of competitiveness,” he said.

“The corporate losses make clear that Hapag-Lloyd has a long way to go.”

Michael Kruse, Hamburg senate speaker on economic policy for the Free Democratic Party (FDP)

CEO Mr. Habben Jansen, whose own total remuneration shrank from €2 million to €1.75 million due to the poor numbers, promised increased results in the current year.

The fact that in 2017 only a fifth of new ships will be added to the market should help. Also, the scrapping of old ships reached a record high in 2016. The discontinuation of freighters – 7.5 percent of the world’s fleet were anchored in roadsteads since January – further reduced transport capacities, which in turn resulted in a heavy increase in cargo rates.

Mr. Habben Jansen has described the beginning of 2017 as “challenging”. “Because of long-term contracts, we have yet to be able to profit from the positive development of spot rates,” he said. By comparison, the price of ship diesel noticeably increased.


Christoph Schlautmann started working for Handelsblatt in 1993 and currently covers the logistics and waste management sectors. Contact the author:
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