Hapag-Lloyd’s profit downgrade could be followed by other carriers on the back of a ‘toxic combination’ of increasing fuel and charter prices and continued weakness in rates, said a top container analyst.
SeaIntelligence Consulting chief executive Lars Jensen said “I do not think anyone who has witnessed the market conditions year-to-date 2018 could be surprised about the profit downgrade. Hapag-Lloyd was simply the first to do it, but I would be highly surprised if this more negative view on 2018 profitability is not fairly symptomatic for most other main carriers as well. Hapag was merely the first to put it into writing.”
He said that the “toxic combination of increasing fuel and charter prices and continued weakness in rates inevitably leads to such a situation”.
A major problem, he said, is that the “pricing mechanism in the industry is broken”.
Mr Jensen said that until a more solid foundation emerges which includes elements such as proper yield management, contract adherence, better supply chain forecasting, better analytical tools in managing the highly complex flows of millions of containers and more stable service levels, “then we are likely to continue to see such profit volatility for the carriers. And the shippers are going to continue to see relatively poor service levels”.
Hapag-Lloyd now expects to generate a full-year EBITDA in the range of €900 - €1,150M compared to its 2017 EBITDA of €1,054M. Moodys Investors Services commented that this revision is driven by sustained increases in bunker costs in tandem with the increase in oil prices. At the same time, the recovery of freight rates has been slow with a prolonged weakness following the Chinese New Year. In combination, these factors put pressure on the company's earnings.
But Moody’s vice president and shipping analyst Maria Maslovsky said “While weaker operating performance is a credit negative, the ratings for Hapag-Lloyd are unaffected by this announcement as we expect its leverage to remain within our guidance for its B2 rating -between 5.0x and 6.0x when measured on a debt/EBITDA basis.”