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Hapag-Lloyd to Seek Cost Cuts After Net Profit Slump

Maritime Activity Reports, Inc.

March 14, 2024

© olrat / Adobe Stock

© olrat / Adobe Stock

German container shipper Hapag-Lloyd said on Thursday the global oversupply of container ships and a crisis in the Red Sea will force it to cut costs in 2024, adapting sailings and ports following a bruising 83% fall in net profit.

Ship operators face prolonged disruption while Yemen-based Houthi militants are attacking vessels travelling on one of the world's busiest routes, wiping out the benefit from higher freight rates with costly redirections around Africa.

Hapag-Lloyd's problems chime with those of competitors such as Maersk and CMA CGM, exacerbated by the arrival of additional ships ordered during the pandemic years when they posted record profits due to logistics hiccups.

"We expect the market environment to continue to be difficult given the large number of ship deliveries this year," said chief executive Rolf Habben Jansen.

"We need to further reduce our per-unit costs in order to remain profitable and competitive, going forward," he said.

The world's fifth-biggest container liner operates 266 ships and plans to save on the procurement side and adjust services, he added.

In a call with reporters, Habben Jansen said this could include faster sailings, changes to departure and delivery ports, and operational efficiencies.

A collaboration with competitor Maersk, beginning February 2025, would also help, he said.

Asked whether adjustments meant cuts to sailings, Habben Jansen said the Red Sea crisis had rather enforced route changes.

Hapag-Lloyd established land corridors in January through Saudi Arabia to mitigate the impact on its business from Jebel Ali, Dammam and Juibail to its ocean shuttle service out of Jeddah.

The company posted a net profit of 3.0 billion euros ($3.28 billion) for 2023, down from 17.0 billion a year earlier, and cut its dividend to 9.25 euros per share from 63 euros.

German shipowners' group VDR on Tuesday said the diversions away from the Suez Canal cost operators $1 million per tour.

Global fleet growth is expected to be between 7 and 10% this year after a rise by 8% already last year, Hapag-Lloyd data showed.

Earnings before interest and taxes (EBIT) in 2024 will likely be between minus 1.0 billion to 1.0 billion euros, after 2.5 billion euros in 2023, Hapag-Lloyd forecasts.

Its shares, with a small free float so vulnerable to bigger swings, were down 3.7% at 129.4 euros at 1425 GMT.

(Reuters - Reporting by Vera Eckert; Editing by Miranda Murray, Christopher Cushing, Ros Russell, Elaine Hardcastle)