Continued from previous pageThe Hamburg, Germany-based carrier said it carried 3.05 million TEUs in the quarter compared with 2.81 million TEUs in the same 2017 period. However, average freight rate was $1,055 per TEU in the third quarter of 2018, compared with $1,073 in the third quarter of 2017. The average rate in the third quarter was also better than that earlier in the year: For the first nine months of 2018, the average rate was just $1,032.
Hapag-Lloyd acquired United Arab Shipping Company in May 2017. In the first nine months of 2018, Hapag-Lloyd’s volumes grew 26.6 percent, in large measure because of the acquisition. However, even on a pro forma basis that reflects UASC’s volumes, Hapag-Lloyd grew its volumes 5.5 percent in the first nine months.
Rolf Habben Jansen, the chief executive officer of Hapag-Lloyd, said the market environment for container shipping improved in the third quarter, with the company getting better utilization of its ships and realizing synergies from the UASC merger.
He confirmed that the company expects to have achieved 90 percent of the $435 million in synergies it expected from combining with UASC by the end of this year. Those synergies have helped partially offset rising operational costs, such as higher fuel cost.
Looking to the future, Habben Jansen said, “It’s quite likely in the upcoming couple of years demand growth will actually outstrip supply growth, which should help a little bit.
“If we see demand growth next year of between 3 percent and 4 percent, then the likelihood that we will see a better balance between supply and demand is high,” said Habben Jansen. “That gives us some reason to be cautiously optimistic not only about 2019, but also the ability to pass on higher fuel costs.”
He agreed growth on the Asia-Europe trade lane has been disappointing, but he also noted that it was well known that a great many large ships would be put into that trade lane in 2018.
He said if the higher 25 percent U.S. tariffs on Chinese goods go into effect on January 1,"I do not believe trade will fall off a cliff." He noted goods manufactured in China might shift to other countries, but continue to be made in Asia.
While there have been a number of new ships ordered in 2018 (including Hyundai Merchant Marine’s order for 20 mega containerships in September), Habben Jansen noted that the amount of new containership capacity on order has continued to fall in recent years.
The orderbook for new ships today is 2.4 million TEUs — or 11 percent of the global fleet. That’s down from 3.8 million TEUs or 19 percent of the fleet in 2015. Hapag-Lloyd believes that in 2019 and 2020, demand growth will outstrip supply based on orders made to date and an expected upswing in scrapping for ships.
Hapag-Lloyd said in the first nine months of the year the average price it paid for bunker fuel was $406 per tonne compared with $311 per tonne in the first nine months of 2017. The company said freight rate increases in the third quarter “were unable to fully offset the significant year-on-year rise in the average bunker price.”
Hapag-Lloyd, like other carriers, are facing even higher fuel costs when a new requirement promulgated by the International Maritime Organization to use low-sulfur fuel goes into effect on Jan. 1, 2020.
In advance of that, Hapag-Lloyd introduced a Marine Fuel Recovery Mechanism (MFR) on Oct. 8 that it said it will gradually implement after Jan. 1. The MFR per TEU will be calculated by multiplying the average price of fuel that Hapag-Lloyd pays by the amount of fuel that is consumed for moving that TEU.
Habben-Jansen said the vast majority of Hapag-Lloyd’s contracts already include a bunker formula, but that the fuel cost increases expected because of the IMO 2020 mandate “will have to be passed on because they are simply too much for anyone to absorb.”
Based on Hapag-Lloyd’s base-case scenario that fuel will be about $250 a tonne more expensive than it is today, the company expects fuel costs will increase about $1 billion.
“If you look at some of our larger competitors, these numbers are even significantly bigger,” he said.
Companies potentially can avoid those costs by using LNG to fuel their ships or by installing scrubbers that will allow them to remove sulfur from their engine exhaust.
But Habben Jansen said little can be said about the economics of LNG because of uncertainty about supply and its technology. But he said Hapag-Lloyd will convert one ship in the first quarter of next year to run on LNG, which he said will give the company a better view of the actual consumption and cost of running a ship on LNG.
“If it looks good, then we will certainly consider to convert the remaining 16 vessels,” he said. Hapag-Lloyd acquired 11 15,000-TEU ships and six 18,000-TEU ships that were “LNG ready,” that is more easily convertible to run on natural gas, from UASC.
Habben Jansen did not think scrubbers will have a major impact on the container market, saying 95 percent of ships will use low- sulfur fuel.
Another way that shipping companies can reduce fuel costs is by slowing their ships, but he said Hapag-Lloyd does not have a plan to generally reduce the speed of its ships. He said the company has added a number of ships to strings, notably in the Atlantic, which has allowed it to slow ships somewhat.
In August, Hapag-Lloyd introduced an online rate quotation tool called Quick Quotes. Habben Jansen said the company has been pleased with its reception. About 10,000 to 15,000 customers are using it on a weekly basis, and it issues 80,000 to 100,000 quick quotes each week.
Early indications are that the product is attracting a mix of both smaller and medium-sized customers and both large and small NVOCCs.
While some of Hapag-Lloyd’s competitors are moving into logistics — Maersk by integrating Damco into Maersk Line and CMA CGM by purchasing a one-third share of CEVA — Habben Jansen said, “We have no intention to buy ourselves into the logistics space.” Before joining Hapag-Lloyd, Habben Jansen led Damco for A.P. Moller-Maersk.
Habben Jansen said that the company will present its five-year strategy during a Capital Markets Day presentation on Nov. 21.