Hapag-Lloyd puts focus on costs to maintain liquidity
While the jury remains out on how much container shipping will suffer from the downturn in global trade, Hapag-Lloyd is cutting its cloth to meet demand. A more balanced fleet profile should make an eventual recovery more likely
A recovery in demand could be seen as early as the third quarter, says Rolf Habben Jansen
HAPAG-Lloyd will continue with its cost-cutting drive to manage its way through the coronavirus pandemic, but expects that a recovery, which may begin as early as the third quarter, will be stronger than that seen after the global financial crisis.
“It is very clear that the coronavirus pandemic is hitting the world economy and particularly container shipping,” chief executive Rolf Habben Jansen said in an online briefing.
Forecasts from the IMO of an 11% decline in global gross domestic product were likely to lead to a decline in container volumes of at least 10%, he said.
But there was a “tremendous amount of uncertainty” around any forecasts, Mr Habben Jansen added.
“If you compare today with where we were eight to 10 weeks ago, when business was still running pretty much as normal and people were looking at some cases in China, then look at where we are today, one can only speculate about where we will be in another eight to 10 weeks.”
But a recovery could emerge quickly, he said.
“We still expect to see a recovery, which is probably going to start somewhere in the third quarter and we would expect that to continue going through 2020.”
And there was an important difference between this crisis and that of 2008-2009. The box shipping industry had entered a ‘long and difficult period’ following the global financial crisis on the basis of overcapacity.
“Today, that situation is materially different as the orderbook is at a record low,” Mr Habben Jansen said. “I’d be very surprised if we saw orders come back any time soon. I would expect the orderbook to come down even further, which should help to prevent a catastrophic situation beyond the pandemic.”
Hapag-Lloyd, the world’s fifth-largest carrier by capacity, had planned to order a series of new ships, but those plans were now on hold until there was further clarity over demand.
“We are still looking at the newbuilding programme, but we do not intend to put an order out in the next few weeks,” Mr Habben Jansen said. “Realistically it means there will be a delay of at least some months.”
In the meantime, the Hamburg-based line would continue to focus on cost controls.
“We need to adjust our cost balance and as such we are adjusting capacity to lower demand, Mr Habben Jansen said. “Other measures to cut costs have included trying to avoid the Suez Canal in some cases. I expect more of that as the costs that we are facing for the Suez are still very significant.”
In total, Hapag-Lloyd is planning a “mid-three-digit millions” cost-cutting drive, on top of previous plans to reduce costs by $350m-$400m before the end of 2021.
“That plan has largely been executed and the savings we are looking at now are definitely going beyond that,” he said.
Capacity is being cut to control costs, but Hapag-Lloyd has on-hired equipment to ensure there is a sufficient supply of containers. “The flows today are quite disrupted and we need more boxes even with reduced demand.”
But when demand picks up, Mr Habben Jansen said capacity would increase again with no difficulty.
On the financial side Hapag-Lloyd is watching cash “very tightly” and reining in investment plans to see what can be pushed back to ensure additional liquidity in case it is needed.
“If we see a recovery in the third quarter we will not need that but it is better to be prepared,” Mr Habben Jansen said.