Container freight rates are back to pre-Covid levels — and in some cases even lower.
“That is a problem because costs are up in reality 25% or 30% above 2019,” Hapag-Lloyd chief executive Rolf Habben Jansen told an investor call today.
Spot rates are especially low from Asia to Europe and on the transatlantic trade, where the German line is a leading player.
But costs have risen due to inflation, low-sulphur fuel and long-term time charter rates.
While rates are likely to stabilise above the cost level in the medium term, rising overcapacity could have a significant negative impact on industry profitability.
“By and large it will be a challenging market, not only the remainder of this year but also in 2024 and potentially in the year after that,” Habben Jansen said.
That could result in difficulties in closing freight contracts because some shippers are looking to secure rates below cost.
“We see expectations out there for contract rates that are unrealistic,” he said.
“Because we’re not going to close at levels where that we would lose a lot of money.
“We’d rather take out cost and capacity if and when it is needed.”
Hapag-Lloyd and its liner partners have already removed entire services instead of blanking sailings on a weekly basis, he said.
His expectation is that contract rates will be closed above current spot levels, as many are at unsustainable levels.
Caveat to recovery
“What we see at the moment is that rates have really dipped in some trades far below where they should be,” he said.
“Normally they will bounce back after a couple of quarters at the latest. That should happen now.
“The only caveat is that most people have very healthy balance sheets, so it could take a bit longer, but I personally don’t expect that.”
Container ship scrapping is likely to pick up, he said, and Hapag-Lloyd is drawing up a demolition programme for the next two to three years.
But many older ships are operating on expensive long-term time charters that make it more difficult to scrap vessels.
Habben Jansen was speaking after Hapag-Lloyd unveiled a sharp drop in profitability due to the falling freight market.
Net profits sank to $293m for the three months to the end of September, from $5.2bn a year earlier.
The numbers could have been worse had volumes not picked up.
Freight rates in the quarter averaged $1,312 per teu, down from $3,106 per teu a year earlier.
