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Hamburg Süd Group 2008 - Satisfactory result thanks to booming bulk operations / Challenging year for the liner services
By contrast, the available capacity of container vessels worldwide increased virtually unchecked, by 13.2 per cent to 12.4 million TEU. Similar high growth is expected for 2009, although many shipowners are trying to postpone delivery of the ships ordered in the boom years or cancel newbuilding contracts. Only some per cent of container ships operating worldwide have, at more than 25 years, reached the end of their useful economic and technical life. Significant scrapping volumes can therefore not be anticipated in the years to come. For the first time in many years, 2008 saw structural overcapacity in container ships, and this will continue to rise substantially in the months ahead. Even if world trade were to experience a recovery in 2010 - a situation not yet foreseeable today - it would still take quite some time for supply and demand in container shipping to achieve equilibrium. At the present time, approximately eleven per cent of worldwide container shipping capacity is lying idle. A particular burden was placed on liner shipping by energy prices which continued to increase dramatically well into the autumn. Thus prices for heavy bunker oil, averaging 475 USD/ton, were again almost 40 per cent above the previous year's level, peaking at 715 USD/ton in Rottedam in July. Handling and inland transport costs also rose steeply on the back of high energy prices. It was possible to pass these cost increases on to customers by way of bunker and other surcharges only partially and with considerable delays. Hamburg Süd's performance at a glance Thanks to the integration of the liner operations of Costa Container Lines (CCL), acquired in late 2007, and against the backdrop of a world economy on a growth course up to the middle of the year, the Hamburg Süd Group, which, alongside the Brazilian sister company Aliança Navegaçao é Logistica Ltda., includes the tramp operations of Rudolf A. Oetker and Furness Withy Chartering, succeeded in increasing volumes in the liner services by 25 per cent on the previous year to just under 2.7 million TEU. This means that the transport performance of the Hamburg Süd liner services has averaged an annual increase of 21 per cent in the past ten years. Total turnover in 2008 rose by 24 per cent to 4.5 billion euros. Similar growth rates were recorded in the container inventory and in the slot capacity of the ships. Only the number of employees rose at a disproportionately low rate, resulting in a renewed increase in the organisation's productivity. At 530 million euros, capital expenditure was only marginally below 2007's all-time high. Delivery was taken of two "Monte" newbuildings, each with a nominal slot capacity of 5,500 TEU, and three "Rio" vessels (5,900 TEU). These are deployed in the trade lanes from Asia and Europe to South America and, due to their shallow draught and high reefer-container capacity, ideally meet customer requirements. Aside from the turnaround in the world economy and world trade, with cargo growth beginning to flag significantly in the fourth quarter, business development in 2008 was marked by upheavals in the lead currencies. Hamburg Süd's key trading currency, the USD, lost value sharply against the euro up to the middle of the year, to strengthen again by almost 20 per cent towards the end. By contrast, major cost currencies for the Group, the Brazilian real and the Australian dollar, fell sharply in value in the course of the year. Around 15 per cent of the growth in turnover, from 3.6 billion euros in the previous year to just shy of 4.5 billion euros in 2008, is attributable to organic growth and nine per cent to the acquisition of CCL's business. Bunker costs constituted the single most important cost category. With consumption at approximately 2.2 million tonnes, two million thereof in the liner services, some 1.1 billion USD was spent on bunker. The price-driven increase in costs stood at 0.3 billion USD. As with the ships, so too was the strategy of continuously increasing the owned share further pursued with the containers. The bulk of investments in containers - around 150 million euros - was spent on reefer boxes. Hamburg Süd has strengthened its organisation in the Mediterranean and Central America with the takeover of the CCL services. It is represented today by approximately 300 offices worldwide. Some 87 per cent of shipment volume is handled by over 100 proprietary offices. Only at locations with lower volume levels is the Group represented by third party agencies. The Group's result and cash flow exceeded target and were roughly on a par with the previous year's level. However, the contribution of the tramp operations to results was significantly higher than to total turnover. Despite the heavy strain imposed by rapidly increasing energy prices, the performance of the liner services was positive over the year. Against the backdrop of the dramatic development of the world economy, the result for 2008 can characterised as satisfactory. Liner shipping Hamburg Süd's liner business in the first half-year was marked by the takeover of the liner services of Italy's Costa Container Lines. In all, 430 employees, as well as nine mainline and feeder services with arryings of approximately 350,000 TEU, were successfully integrated into the Hamburg Süd Group. This produced diverse opportunities to merge services and replace many smaller vessels with a lesser number of larger ships with lower slot costs. Furthermore, organic growth was boosted by extending services and launching new activities. Operated in conjunction with Asian partners, a weekly service was inaugurated in the trade lane between India/Pakistan and South East Asia/China. Larger vessels, with a capacity of 4,200 TEU, were introduced into the service between Europe and India/Pakistan. Finally, the Asia/South America East Coast Service was reinforced by ships of the "Monte" class (5,500 TEU) and the Asia/South America West Coast Service by the 4,000 TEU ships of the "Bahia" class. The takeover of CCL's business also involved assuming charter commitments on a considerable scale. In addition, a number of owned ships and vessels chartered in over previous years were added. This raised ship capacity by 36 per cent. Despite the substantial growth in cargo, average capacity utilisation for the year declined, due in the main to the radical downturn in the fourth quarter. The financial and economic crisis reached Hamburg Süd liner operation with full force in November 2008. Ship utilisation fell to 72 per cent in the final quarter of 2008. This negative trend continued in the seasonally weak first quarter of 2009 when average capacity utilisation of all Hamburg Süd liner services reached 61 per cent below the previous year's level. Particularly hard hit were Hamburg Süd's core trades, from Asia, Europe and North America to South America East Coast. From the South American perspective, market volumes here collapsed by up to 40 per cent for imports and by up to 20 per cent on the export side in January 2009 compared with the beginning of 2008. To counter the substantial decline in volume swiftly and sustainably, Hamburg Süd immediately instituted numerous measures that would adjust ship capacities as far as possible to changed market conditions. Thus, since the end of 2008, ships have been temporarily laid up and numerous services streamlined. In the service from North Europe to South America East Coast, the second weekly service is to be abandoned, as is that in the trade between the Mediterranean and South America East Coast. The Trident Service, between Europe, North America East Coast and Australia/New Zealand, is losing the direct link with Europe. Cargo from Australia/New Zealand to Europe is being transshipped in Cartagena to the service operating from South America West Coast to Europe via the Caribbean. In this way, Hamburg Süd can also make use of its very dense network of liner services for purposes of rationalisation. Similarly, in the service between South America West Coast and Asia a parallel second weekly service has been suspended. Rationalisation measures have enabled capacity in the first quarter of 2009 to be reduced by an average 10 per cent - and by no less than 15 per cent at the peak. This has also been accompanied by the temporary laying-up of six to eight vessels. Given the current economic crisis, one event that has been exercising liner operators and their customers for many years has receded into the background. In October 2008 the EU repealed its exemption rule for liner conferences. Liner operators are longer permitted to reach any agreements whatsoever on prices or other terms. The pooling of capacities in consortia is still allowed, providing it does not result in market dominance. In practice, the consequences tend to be minor, however, as, in view of fierce competition, effective pricing agreements had long since ceased to exist. For the future it is to be hoped that shipowners can now focus on improving relations with their customers on the basis of constant improvements to their range of services, covering their costs and earning a reasonable return. Tramp shipping Hamburg Süd's tramp operations are managed in Hamburg under the subsidiary Rudolf A. Oetker KG. The container department has chartered in around 90 container vessels, the majority of which are deployed in Hamburg Süd liner services. A further twelve Panamax container ships are to be added in 2009/2010. In addition, with its sister companies Furness Withy Chartering and Alianca Bulk, Rudolf A. Oetker operates between 30 and 40 bulk carriers of the Handymax and Panamax classes with a capacity of between 38,000 and 77,000 dwt. Finally, Rudolf A. Oetker currently operates and charters ten product tankers. The bulk markets enjoyed a boom until mid-2008, thanks primarily to the Chinese economy's heavy demand for coal and iron ore. Bulkers' revenues were reaching all-time highs, only to drop within a matter of weeks after the summer break to daily rates which did not even cover variable operating costs. Whereas a modern Panamax bulk carrier was still bringing in 90,000 USD a day on a voyage in the middle of the year, the same ship could not even make 5,000 USD a day at the start of 2009. During the boom in 2007 and 2008, the second-hand prices for modern, immediately available bulk carriers was, in some cases, well above the prices for newbuildings which, after delivery, were only available a few months later. This inverse price structure, indicating overheating in the markets, has since returned to normal. The order books for bulk carriers are still well filled. It is to be expected, though, that a large number of ships will not be delivered, as, for one thing, they were ordered from so-called greenfield yards which, in turn, did not go into production as a result of the crisis. For another, numerous orders will not be executed for lack of funding. Furthermore, the worldwide bulker fleet has a high average age, meaning there is substantial potential for scrapping in the years ahead. With prices for crude oil and oil derivatives declining, the charter rates for product tankers have also started to slide in recent months, and business has generally waned. The order books for product tankers show a similar picture to those for bulk carriers. Deliveries on a substantial scale can be expected in the years ahead. However, they are matched by a growing number of scrappings of older, especially single-hulled, vessels. The slump in charter rates for container ships should prove the most sustainable. Whereas 27,500 US dollars a day for a year's charter was still being paid for a standard ship of 2,500 TEU at the start of 2008, the same ship can be had today for 6,000 US dollars a day. Given the high number of deliveries expected in the coming two to three years and not matched by corresponding cargo growth, charter rates for container ships will continue to languish at a very low level for some time to come. Owner will forgo dividend payouts for a long time and lenders will have to be ready to stretch their funding if they do not wish to risk loan defaults on a considerable scale. Outlook The crisis in container shipping follows the world economic and world trade crisis. But it is also homemade. Many shipowners and finance houses have ordered ships on a speculative basis in recent years on the erroneous assumption that cargo growth would continue unchecked. Even if the world economy rallies slightly in 2010, it will still take two to three years for equilibrium between supply and demand to be restored in container shipping. Shipment volume in Hamburg Süd's liner services in the first quarter of 2009 stood some 20 per cent below the same period last year. Average revenues have fallen around 20 per cent since the peaks reached in mid-2008. This is due not only to falling bunker surcharges. In some trade lanes freight rates are being quoted which do not even guarantee full coverage of the variables, not to mention making a contribution to fixed costs. The volume- and rate-related drops in revenue are only partly being offset by lower bunker and charter costs. Hamburg Süd, too, must respond to nosediving revenues by streamlining its liner network and making cuts in its cost structure. Alongside ship system costs, other budgets are coming under the microscope. Together with service providers Hamburg Süd is seeking ways to achieve reductions in handling, intermodal, equipment and charter costs while respecting existing contractual agreements. Additionally, the organisation is urged to adjust the staffing schedule as far as possible to match declining business volume without jeopardising the high level of service quality Hamburg Süd offers its customers. Despite these measures, which were instituted in the second half of 2008, it will not be possible in 2009 to achieve the performance and cash flow level of past years. Source: Hamburg Süd |
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Hamburg 20 April 2009