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Jun 19, 2023

Habben Jansen Outlines the Short

As usual, the CEO of Hapag Lloyd, Rolf Habben Jansen, has articulated the

As usual, the CEO of Hapag Lloyd, Rolf Habben Jansen, has articulated the reality of the container shipping market. In presenting his company's third quarter results last week, Mr Habben Jansen observed that the fundamentals of the container shipping sector were changing. He commented that "we should always look at supply and demand in this market and that the order book remains relatively big…the industry needs an order book that's a little bit smaller than what we see right now but we do see that ordering activity has come down this year and that makes sense. I would also say that when you look at the global supply-demand balance it is likely that we will see more supply growth than demand growth". Mr Habben Jansen also noted that "we assume that there is not going to any major congestion but rather the congestion will ease". He admitted that freight-rates will soften and his colleague Mark Frese pointed-out that there is considerable inflation in costs, not just bunker fuel but handling and wage costs as well. All of this strongly points to falling freight rates through 2023 and falling margins for the carriers.

Yet Hapag Lloyd continues to be profitable. The first nine-months saw revenue up 58% year-on-year, to US$28.4bn whilst group profit is up 120.4% at $14.6bn. Things do look like they are slowing, with quarterly numbers growing more slowly, yet Hapag Lloyd is sticking to its forecast of an "EBITDA in the range of $19.5 to 21.5 billion and an EBIT in the range of $17.5 to 19.5 billion"

Of course, Hapag Lloyd has striven to base its shipping business on more stable longer-term contracts rather than the spot market, none-the-less the company must feel the effects of the trends at sometime in the not-too-distant future. And this could be a time of considerable peril for the container shipping sector, squeezed between falling rates and cost inflation. A company such as Hapag Lloyd is cushioned in the shorter term by its financial strength but it is worth considering what its response will be to a more hostile market. The possibility of more consolidation or diversification through acquisition would appear quite possible.

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