Hapag-Lloyd announced a fourth-quarter operating loss of $300 million compared to the previous year, attributed to the convergence of normalized rate levels and a volume loss resulting from ships being rerouted around southern Africa to avoid Red Sea shipping attacks. The challenging combination impacted the company’s financial performance during Q4 2023.
The shipping industry heavyweight ended the year on a tough note, with an almost 50% drop in full-year revenue, hitting $19.4 billion. The significant decline was mostly due to a 48% decrease in average freight charges, which fell to $1,500 per TEU. Despite these challenges, the corporation remained profitable, generating $2.7 billion in full-year profits before interest and taxes (EBIT). However, market constraints in 2023 resulted in a large $15.7 billion fall in EBIT against the previous year.
According to a statement from Hapag-Lloyd, the fighting in the Red Sea had a negative impact on shipping volumes at the end of the year, since rerouting ships around the Cape of Good Hope resulted in longer travel times. Despite these problems, the total volume transported this year increased by 0.5% to 11.9 million TEUs.
Hapag-Lloyd’s fourth-quarter deficit foreshadows a tough earnings season for carriers. This comes as they negotiate a container shipping sector marked by a significant surplus of capacity and a slowing global economy, which continues to put pressure on demand. The industry is wrestling with the necessity to adapt to these changes in the coming months.
Drewry predicts a considerable fall in carriers’ EBIT margins in the fourth quarter of 2023, with an average of 2%. This represents the lowest operating margin since the second quarter of 2018. The prediction highlights a difficult moment for carriers, with industry dynamics, economic conditions, and operational issues all contributing to the decline.
The industry expert expects the shipping sector to have a total EBIT profit of $31 billion in 2023. However, this prediction represents a significant decline from the top 12 carriers’ combined EBIT of $95 billion reported in 2022. Notably, Cosco Shipping Holdings has issued a cautionary note to investors, predicting an 80% drop in operational profit for 2023 compared to the previous year. This reflects the overall trend of declining profitability in the shipping sector, impacted by several economic and operational variables.
The core challenge revolves around the existing disparity between supply and demand in container shipping. As highlighted by BIMCO, there is a projected increase of 10% in capacity for 2024, while demand growth is expected to be in the range of 3% to 4%. This scenario is exacerbated by the planned delivery of 478 container ships throughout the year, collectively possessing a capacity of 3.1 million TEUs. Notably, this represents a substantial 41% increase compared to the vessels delivered in 2023. The industry is grappling with an oversupply of shipping capacity, contributing to the complexities of maintaining profitability amid a subdued demand landscape.
The magnitude of the overstock in the container shipping business continues to be a serious task, even with major attempts to reroute ships around the Cape of Good Hope. According to Drewry’s container shipping outlook released on Tuesday, rerouting ships around southern Africa for the duration of the year would only remove 9% of the market’s effective capacity. Unfortunately, this leaves the sector struggling with a significant surplus, highlighting the ongoing difficulties carriers confront as they attempt to negotiate difficult market circumstances.
