Hapag-Lloyd says prospects buoyed by rising freight rates

FRANKFURT (Reuters): German container shipping company Hapag-Lloyd expects increased operating earnings this year, it said on Friday, citing a rise in freight rates as market conditions improve.

The shipping industry has been grappling with a prolonged downturn brought about by overcapacity in a faltering global economy, but Hapag Chief Executive Rolf Habben Jansen pointed to signs of upward momentum.

“We expect some market improvement in 2017, but our success will largely depend on our ability to achieve more sustainable freight rates,” he said.

“Supply and demand are getting a bit closer to each other,” he added, citing the idling of ships across the sector.

The Hamburg-based group said it should achieve a moderate increase in freight rates and transport volumes in 2017 and that preparations for the completion of its much-vaunted proposed merger with United Arab Shipping Company (UASC) are in their final stages.

Last year’s core profit was down 27 percent at 607.4 million euros ($656.4 million), Hapag-Lloyd said, confirming preliminary earnings published on Feb. 28. That led to a net loss of 93.1 million euros from a profit of 113.9 million euros in 2015.However, Habben Jansen said that, after a challenging first six months of 2016, revenue and results improved significantly in the second half of the year and that the momentum is being sustained. “We have got off to a good start,” he said.

Hapag-Lloyd is still reaping benefits from its merger with Chilean peer CSAV, the Octave cost-cutting program and the Compete to Win project aimed at improving revenue quality.

But its greatest hopes lie with the UASC deal, which would give Hapag access to bigger ships on the Asia to Europe trade route and cement its position as the global market’s fifth-biggest operator in terms of capacity.

The merger is also expected to generate annual savings of $435 million from 2019.