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HomeBusinessAnalysisGerman Shipping Company Hapag-Lloyd Expecting Major Decline in Profits This Year

German Shipping Company Hapag-Lloyd Expecting Major Decline in Profits This Year

Last Thursday, Hapag-Lloyd announced that it is once again expecting a drop in revenue for 2024’s earnings, a trend that follows the company’s financial results from last year.

Though Hapag-Lloyd is world’s fifth-largest carrier with 266 vessels at their disposable, the German shipping line find themselves struggling to find their footing in this post-pandemic era. Hapag-Lloyd has attributed this loss of earnings to a few key factors. The astronomical costs of ocean freight, an overabundance of container vessels because of the supply-and-demand of the pandemic, along with the rebel situation at the Red Sea continues to pose a problem for not only Hapag-Lloyd, but also the entire shipping industry.

With Houthi rebels attacking cargo ships passing through the Red Sea and Gulf of Aden, many vessels are avoiding the Suez Canal.

Instead of accessing this waterway, vessels are being forced to reroute their trip around the Cape of Good Hope in South Africa – adding about 4,000 additional miles to each trip, which subsequently increases the cost of freight and transportation time.

A report posted by J.P. Morgan emphasizes that ever since the Yemen-based rebels began attacking cargo freight last November, the rate of transportation going through the Suez Canal has dropped by about 45%. With approximately 30% of the world’s container trade going through the Suez Canal, this issue is posing to be a huge problem for not only Hapag-Lloyd, but the entire logistics and freight forwarding industry. With inaccessibility into the Suez Canal continuing into the unforeseeable future, we can expect the freight costs to remain significantly elevated until the conflict is resolved.

Earnings from 2022-2023 were reported to be 48% lower.

In the company’s annual reports for 2022, Hapag-Lloyd posted earnings of 17.04 billion euros during the Covid pandemic era. This is contrasted with their financial earnings reported in 2023, in which only a net profit of 2.95 billion euros was reported. Similarly, Hapag-Lloyd is currently expecting to earn a net profit of 1-3 billion euros for 2024. Following the announcements, the stock prices of the shipping line continue to follow a downward trajectory. Unsurprisingly, the most notable dip occurred last Thursday, resulting in a sharp decline from $74.76 per share to $62.45 a share.

Hapag-Lloyd focuses on solutions to fight profit slump.

Taking everything into consideration, the shipping line announced that it will respond accordingly and adjust its services and implement ways to cut costs to remain competitive and in business. They emphasized that they would focus on re-adjusting operational efficiencies, which could potentially impact departure/sailing time and delivery ports.

Hapag-Lloyd CEO, Rolf Habben Jensen, issued the following statement:

“We expect the market environment to continue to be difficult given the large number of ship deliveries this year,” and the company plans to further reduce per-unit costs in order to remain profitable and competitive.”

Jensen also added that another step they have taken was the long-term operational agreement that was reached with their competitor Maersk. This partnership (nicknamed the Gemini Cooperation), originally announced in January of this year, will begin in February 2025. It aims to create an ocean network that covers 7 trade zones: Asia/U.S. West Coast, Asia/U.S. East Coast, Asia/Middle East, Asia/Mediterranean, Asia/North Europe, Middle East – India/Europe and Transatlantic by deploying a fleet of approximately 290 vessels with a combined capacity of 3.4 million containers.

Hapag-Lloyd believes that this partnership is the first major step of many and will not only provide improved transmit times, but also access to the most connected ocean hubs that can flexibly adjust their operations to scale to the customers’ needs.

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