News / European container carriers look for silver linings in the ashes of 2012

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In a further sign that the container shipping industry is returning to a position of financial health, two of Europe’s largest carriers, CMA CGM and Hapag-Lloyd, yesterday released full year results for 2012 which showed that they had managed to chart a course through a decidedly topsy-turvy 2012 relatively unscathed.

Both reported increased revenues and volumes and although profitability continued be under pressure, although by markedly varying degrees, both made audible sounds of optimism in their prognosis for the forthcoming year – despite the economic headwinds in several key markets, most notably Europe.

The French line cemented its position as the world’s third largest container shipping carrier with a 6% increase in volumes that saw it carry 10.6m teu, indicating that it won market share during a year when overall container volumes grew by less than that percentage.

In fact, CMA CGM’s turnaround in 2012 was little short of astonishing, considering the precarious financial position it has found itself in in recent years and the underlying weakness in the container shipping markets.

Central to its better performance is both the recapitalisation of its balance sheet – the year saw it sell a 49% stake in its container terminals business Terminal Link for €400m, receive a $150m investment from French sovereign wealth fund SFI and a further $100m investment for its Turkish minority shareholder Yildirim – in combination with a cost-cutting programme that saw it remove $800m in expenses last year.

As a result, while revenues rose from $14.9bn to $15.9bn, earnings before interest, tax, depreciation and amortisation grew by 82% to hit $1.32bn returning a net profit of $321m, which is expects to replicate this year, according to executive officer Rodolphe Saadé.

“2012 was an important year for CMA CGM, which delivered a very good performance. As we had announced, we also completed our financial restructuring and significantly strengthened our balance sheet with the sale of a new equity interest to FSI and an additional stake to Yildirim. We have therefore begun 2013 on solid foundations from which to pursue our growth.”

In contrast, Hapag-Lloyd’s volumes grew by just 1.1% to 5.26m teu, and it was hit hard by soaring fuel costs, which resulted in it paying an additional $900m in transport costs over the year.

Total revenues rose 12.4% to reach €6.84bn, and it reported an ebitda of €335m, decline of almost 10% on 2011. Net loss came in at €126m compared to 2011’s net loss of  €29m.

In many ways, these two results epitomise the rather mysterious paradox that container lines found themselves in last year. They enjoyed success in pushing through some pretty drastic rate increases in the early half of the year, a push that was led by Hapag-Lloyd and the necessity of which was recognised by customer and competitors following the disastrous bargain-basement rate levels of the previous year.

However, almost all of those gains were later wiped out in the second half of the year, as new capacity was delivered and the shipping industry found it difficult to adjust capacity as it gradually became clear that the demand situation in was worse than anyone had managed to predict and the expected annual peak season failed to materialise.

“Peak season surcharges, which represent an important earnings contribution in the liner shipping sector, could not be achieved in key trades in 2012. The rate increases successfully implemented in the first half of the year – amounting to more than 12% between January and July at Hapag-Lloyd – deteriorated again in the second half of the year as a result of weaker demand,” the company said in its earnings statement.

Drewry’s freight rate benchmarking manager Martin Dixon told The Loadstar: “I think what happened is that the carriers brought back capacity in the second half in the genuine expectation that demand would grow on the key east-west trades, whereas in fact on the Asia-Europe demand began to contract, and suddenly there was far too much capacity at a time when they were also reluctant to pull strings because they had all these new ships being delivered – and that is challenge that they will face once again this year.”

It should come as no surprise that Hapag-Lloyd also took the opportunity yesterday to announce that it was deferring delivery of three of its 13,200 Hamburg Express-class of new buildings from the middle of this year to the middle of 2014 in the light of weak demand, and Mr Dixon said that despite the rate volatility, carriers had been far more disciplined in managing the excess capacity than they were commonly given credit for.

“Effective capacity during the year actually reduced by 3%, and given the expected influx of capacity through the new vessels they actually did pretty well to manage capacity.

“We expect that this year they will continue to use the twin tools of skipped sailings and regular GRIs to try and keep the spot rates up,” he said.