Hapag-Lloyd anticipates a significant decline in earnings for the current year, attributing this outlook to the increasingly complex economic and political landscape exacerbated by the ongoing situation in the Red Sea.
Within the container-shipping industry, a surplus of vessels juxtaposed with insufficient cargo demand has resulted in a notable decrease in freight rates from their pandemic-induced peaks. To address this rate pressure, Hapag-Lloyd has intensified its efforts to reduce costs, focusing on enhancing efficiency in procurement activities and making necessary adjustments to its network.
While recent hostilities in the Middle East have temporarily buoyed rates due to disruptions in the Red Sea, with attacks on merchant vessels prompting shippers to reroute their vessels, thereby constricting capacity and driving rates higher, the company emphasizes that regardless of the outcome of the conflict, the substantial number of ship deliveries expected this year will gradually augment transport capacity. This expansion is anticipated to exert downward pressure on freight rates over time.
Furthermore, Hapag-Lloyd anticipates facing challenges associated with higher transport costs stemming from prolonged voyage times around the Cape of Good Hope, necessitated by vessel diversions to avoid conflict zones, as well as the incorporation of shipping into the European Emissions Trading System. The latter initiative, aimed at curbing industry emissions, is projected to outweigh the benefits of the company’s planned cost-cutting endeavors, further impacting its financial performance.
Citi analyst Sathish Sivakumar expressed disappointment with the provided cost guidance and suggested that the earnings outlook may prompt a consensus downgrade, leading to a 1.5% decline in the company’s shares during early trading.
Hapag-Lloyd disclosed on Thursday that the average freight rate experienced a substantial 48% decrease in 2023, despite a marginal 0.5% increase in transport volumes.
For the fiscal year 2024, the German shipping firm anticipates reporting earnings before interest, tax, depreciation, and amortization (EBITDA) ranging between 1 billion euros and 3 billion euros ($1.1 billion to $3.3 billion), with earnings before interest and tax (EBIT) projected to fall within a range from a 1 billion euros loss to a 1 billion euros profit. This forecast contrasts with the EUR4.46 billion EBITDA and EUR2.53 billion EBIT recorded in 2023.
While Hapag-Lloyd foresees a slight uptick in transport volumes for the current year, it anticipates a significant decline in the average freight rate. However, the company cautioned that the volatile trajectory of freight rates, coupled with geopolitical uncertainties, introduces substantial uncertainty to its guidance. Chief Executive Rolf Habben Jansen acknowledged the satisfactory start to the financial year but underscored the persistent volatility and challenges, particularly concerning the situation surrounding the Red Sea.
In 2023, Hapag-Lloyd posted a net profit of EUR2.95 billion, down from EUR17.04 billion in the preceding year, alongside a 48% decline in revenue. Consequently, the company proposed a reduced full-year dividend of EUR9.25 compared to EUR63 in the prior year.
In a separate announcement, Hapag-Lloyd revealed that its supervisory board has granted an early renewal of CEO Rolf Habben Jansen’s contract, extending it to March 31, 2029, from its original expiration date in 2027. Additionally, the contract of Donya-Florence Amer, serving as chief information officer and chief human resources officer, has been extended for another five years until January 31, 2030.
Michael Behrendt, chairman of the supervisory board, commended Habben Jansen’s decade-long exemplary leadership, highlighting the board’s emphasis on continuity by renewing his appointment.