Germany's Hapag-Lloyd has emerged as the latest liner company to lift its 2020 earnings forecast as a result of the unexpectedly strong container market.
The boxship operator has lifted its Ebitda guidance to between €2.4bn and €2.6bn ($2.8bn to $3bn) for the full financial year.
That is up from estimates of between €1.7bn and €2.2bn in August.
Strong demand and higher revenues had led to a much better-than-expected third quarter of the year.
"We have experienced a strong third quarter with a high demand, especially for exports out of Asia," chief executive Rolf Habben Jansen said.
"Thanks to the positive market development and the wide range of measures we have introduced in recent months, we expect a financial year with results well above our previous forecast."
Pandemic uncertainty
The main drivers of the positive business developments have been significantly higher demand and respectively higher transport volumes.
Preliminary earnings figures show Ebitda rose to around €650m in the third quarter from €554m in the same period in 2019.
Volumes were 3% lower than last year, but much better than expected some months ago.
"Nevertheless, the pandemic will remain a huge challenge and a major source of uncertainty for the entire logistics industry," Habben Jansen said.
Earnings before interest and taxes (Ebit) for the financial year is expected to rise to between €1.1bn and €1.3bn.
That is helped by a significant increase in the third quarter when Ebit rose to around €350m, up from €250m last year.
A mixed bag
Frode Morkedal, managing director of equity research at Clarksons Platou Securities, said the implied Ebitda for the third quarter is actually lower than expected. Consensus suggested €700m.
However, the full-year forecast is above analysts' expectations.
"In other words, Hapag-Lloyd is expecting better 4Q [fourth quarter] than 3Q, which is the opposite of what Maersk announced earlier this week, where Maersk expected 4Q to be below 3Q at the mid-point guidance," Morkedal said.
Clarksons Platou said that, if similar volume development to Maersk is assumed — ie, a drop of 3% year on year — the third-quarter figures imply either disappointing freight rates or some cost issues.
Assuming a rise of 3% in volumes during the fourth quarter, the guidance implies that average freight rates are overall steady at around $1,100 per teu.
"In our view, we now have both Maersk and Hapag-Lloyd implicitly saying there will be a normalisation of freight rates during 4Q," Morkedal said. "This should be no surprise at this point. Bottom line is that we think the market could be at its peak now."
Ratings upgrade
The upgrade of earnings follows a positive assessment of Hapag-Lloyd by two major ratings agencies.
Moody's Investors Service yesterday raised Hapag-Lloyd’s credit rating by one notch from B1 with a negative outlook to Ba3 with a stable outlook.
This is the highest credit rating assigned to Hapag-Lloyd since Moody's started covering the liner operator in 2010.
The ratings agency acknowledged that the container shipping market and, in particular, Hapag-Lloyd have performed very strongly and better than anticipated amidst the pandemic.
As a consequence, Hapag-Lloyd’s credit metrics have continued to strengthen in the first half of 2020.
Last week, Standard & Poor’s raised the credit rating on Hapag-Lloyd from B+ to BB- with a positive outlook.
Mark Frese, chief financial officer of Hapag-Lloyd, said the ratings upgrades reflected "our long-term efforts to improve our balance sheet structure through continuous operational improvements and repayment of debt".
"Going forward, we are committed to even further improve our credit quality," he said.
Sustainability questions
The brighter outlook comes days after AP Moller-Maersk unveiled its own forecast of higher earnings.
But questions remain over the sustainability of the recovery in volumes.
The service schedule of Hapag-Lloyd and its partners in THE Alliance suggests some slackening of demand is expected from the end of November when a handful of sailings will be voided.
