In International Shipping News 02/06/2017
The German shipper Hapag-Lloyd, which has merged with its Arab peer United Arab Shipping Company (UASC), may expand its presence in the Middle East, Africa and India region, as it expects container growth there to be above the global average, its chief executive said.
Hapag-Lloyd last week completed its tie-up with Kuwait-based UASC to become the world’s fifth-biggest shipping company at a time when the industry is grappling with low freight rates and higher fuel costs.
The merged entity also expects to lay off about 10 per cent of its 13,000-strong workforce over the next two years, said Rolf Jansen, the chief executive, in an telephone interview. “We will not rule out opening up offices in new countries,” he said, adding the shipper’s Middle East region, which will have a new headquarters in Dubai, includes Africa and the Indian subcontinent.
“I would expect it [throughput growth in the region] to be above the global average of 3.5 to 4 per cent [growth in throughput]. The countries that the Middle East region represent, they grow a bit faster than the global economy.”
Last year, the global throughput rose by 2.2 per cent, according to the latest figures from the maritime research consultancy Drewry. The first four months of the year have been much stronger than anticipated, said Neil Dekker, Drewry’s director for container research.
Mr Jansen expects the Middle East region this year to account for about 15 per cent of its global forecast throughput of 10.5 to 11 million twenty-foot equivalent units (TEU).
The merger is projected to generate US$435 million in annual savings for the combined company and a big portion of these savings will be realised next year and the full amount in 2019.
The company’s headcount, however, will be reduced gradually. “Our biggest priority is not to reduce the number of headcount very quickly because our first priority is now to keep the business stable and keep all the customers,” said Mr Jansen. “If you look two years out, because these things take time, then the workforce will probably be a little over 10 per cent smaller than what it is today.”
Hapag-Lloyd’s merger with UASC is its second consolidation in three years, after acquiring in 2014 the container business of its Latin American rival CSVA.
The merger with privately held UASC, which was set up in 1976 in Kuwait, also will change the shareholder base of Hapag-Lloyd. Qatar and Saudi Arabia have 14.4 per cent and 10.1 per cent stakes, respectively, in the combined entity. Other Middle Eastern shareholders, including the UAE, Kuwait, Iraq and Bahrain, together hold 3.6 per cent.
The Hapag-UASC marriage, which was struck last year, came at a time when the shipping market was being flooded with new ships, which had left freight rates low.
This year, the market is brighter, thanks to better volumes, but fuel costs are higher than last year.
“Fuel costs or bunkers are double now compared to 1Q16 and so recent financials have focused on this and that it has hurt the carrier bottom line,” said Mr Dekker. “Carriers have been able to increase freight rates since 2H16 partly due to bunker increases but also due to rate discipline and what they have done on the supply side. Fuel costs are by no means fully recovered by lines in the form of bunker surcharges and rising fuel costs will certainly be a concern for carriers through 2017.”
Still Mr Jansen is “cautiously optimistic” about a turnaround in the market and in profitability. The company swung to a net loss of €93.1 million (Dh382m) last year, compared with a €113.9m net profit in 2015. Its first-quarter net loss widened to €62.1m from a net loss of €42.8m in the year-earlier period.
“I think we are going to get back to a somewhat more normal situation [in the shipping industry] … anywhere between now and probably two years,” said Mr Jansen. “We expect that our operating results will be significantly better in 2017 than in 2016.”
Mr Dekker concurs with Mr Jansen’s views that an industry recovery will take two years.
“Ultimately, given that the order book is dead, we do not see a return to a decent supply/demand balance until 2019 because there is still three million TEU of capacity in the system still to be delivered mainly by the end of 2018, but the delay of tonnage from one year to the next may still be a factor here,” said Mr Dekker.
Source: The National
