Top Shipping Company’s Profit Drop Ends the Party

The normalization of global supply chains and the declining demand for sea transport have caused the profit of the Hamburg container shipping company Hapag-Lloyd to collapse at the start of 2023. The bottom line was that in the period from January to March, the consolidated result was only 1.89 billion euros, as Hapag-Lloyd AG announced on Thursday. That is less than half of the 4.17 billion euros from the first quarter of the record year 2022, but still significantly more than in the corresponding period of 2021. Sales shrank by around 30 percent to 5.62 billion euros.

The huge upheavals in the global supply chains had made container shipping companies the winners of the corona pandemic. After many years of crisis with price wars, overcapacities and red figures, the prices for sea transport had continued to rise due to tight capacities. Hapag-Lloyd crossed the finish line in 2022 with a net profit of 17 billion euros as one of the most profitable companies among the listed companies. At the end of the year, CEO Rolf Habben Jansen promised that profits would be significantly lower this year.

The shipping company is sticking to the forecast

Accordingly, earnings before interest and taxes (EBIT) should be between 2 and 4 billion euros. As with many other shipping companies, taxes are disproportionately small for Hapag-Lloyd. This is possible because of the tonnage tax – a method for determining profits that was introduced more than 20 years ago to support Germany as a shipping location. Instead of the actual profit, a fictitious profit is determined based on the size of the ships. This is usually significantly lower than the actual profit.

“Despite declining results, we made a robust start to the current financial year. The market environment has normalized with correspondingly lower demand and declining freight rates,” said CEO Rolf Habben Jansen. “This will undoubtedly affect our earnings over the course of the year, which is why we will keep a very close eye on our costs.” In addition, the shipping company will face enormous expenses as part of the climate-friendly conversion of the fleet.

Two factors lead to the slump

The slump in sales and profits is mainly due to two factors. On the one hand, the transported quantities of 2.84 million 20-foot standard containers (TEU) were almost 5 percent below the previous year’s level, “because local inventories were reduced and global demand was weaker overall”. In addition, the prices for sea transport, known in industry jargon as freight rates, fell. Hapag-Lloyd estimates the average freight rate for the first quarter at $1,999 per TEU, after $2,774 a year earlier.

With a fleet of 250 container ships and a transport capacity of 1.8 million TEU, Hapag-Lloyd is the fifth largest shipping company in the world, behind Cosco, CMA CGM, Maersk and the Primus MSC. The largest shareholder in Hapag-LLoyd is the entrepreneur Klaus-Michael Kühne, who has been able to collect billions in dividends in the past record years. But also the city Hamburg holds 13.9 percent of the shares, which means a dividend of 1.5 billion euros for 2022. Hamburg’s finance senator Andreas Dressel wanted to finance investments in different areas. In the future, this will only be possible on a much smaller scale.

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