Hamburg Süd’s performance in brief
While global economic growth in 2014 remained at previous year’s level with 3.4 per cent, container shipments increased at a considerably higher rate of 5.4 per cent compared with the previous year (3.6 per cent). However, available global slot capacity on board container ships also increased in the past year, outpacing container transport volume. Consequently, it was not possible to reduce the existing overcapacity and freight rates in most trades declined further. A positive effect came from fuel prices, which fell sharply from the fourth quarter of the year.
The weak economic development in Brazil, Argentina and Venezuela contributed to the low, and in some cases negative, growth on the North-South trade lanes. Consequently, Hamburg Süd and its Brazilian subsidiary Aliança were able to increase transport volume by 2 per cent only to around 3.4 million TEU (1 TEU = 20 foot standard container). With freight rates falling and a weak US dollar as the most important earnings currency, total sales fell at the same time by around 1 per cent to EUR 5.2 billion. Results from liner operations remained positive, albeit significantly lower than in the previous year.
Not least driven by the declining economic momentum in China, bulk shipping once again had to contend with difficult market conditions in 2014 and was unable to move out of the red.
The number of staff employed by the shipping Group grew by 4 per cent compared to the previous year to 5,360 employees (including 1,383 crew and excluding trainees).
Capital expenditures stood at EUR 348 million, which was 23 per cent lower than in the previous year, and were financed entirely from cash flow. These mainly comprise deposits and final payments for ten ships of between 4,800 and 9,600 TEU.
Despite waning momentum, with an increase of approximately 7.4 per cent the Chinese economy once again proved to be the engine of global growth in 2014. The situation in Brazil remains unsatisfactory, with the economy stagnating in 2014, and other South American economies, such as Argentina and Venezuela, also failed to recover. On the back of a slight upturn in Europe (+0.9 per cent) and continued stable growth of 2.4 per cent in the USA, overall global economic growth increased by 3.4 per cent to previous year.
Worldwide container transport increased significantly compared with 2013 by 5.4 per cent in 2014, albeit to varying degrees from one market to another. Whilst from 2012 to 2014, growth rates of between 3 per cent and 6 per cent a year were recorded on the Asia-Europe and Asia-North America routes, the Latin America trade lanes grew by an average of around only 1.5 per cent a year.
Due to record deliveries of 1.5 million TEU, global slot capacity (after scrappage) increased even more than worldwide container shipments by 6.3 per cent to 18.4 million TEU.
This meant there was no scope for the restoration of freight rates worldwide in 2014. The trend towards weaker development of freight rates on the North-South trade lanes as opposed to East-West services continued. The deployment of modern 14,000- to 18,000-TEU vessels on services to and from Asia leads to smaller ships being pressured out of the market on these routes. Given that the majority of these are less than 10 years old they are not scrapped, but rather cascade into the North-South trades and increase the pressure on freight rates on these routes.
One positive factor for the shipping industry in 2014 was the development in fuel prices. In the first half-year, the price for heavy diesel fuel remained at a relatively high level of around USD 600 per tonne, only to plunge by over 50 per cent at the end of the year, and since then level out at between USD 250 to 350 per tonne.
Net capacity growth in bulk transport in 2014 stood at around 4.5 per cent after scrappage. This went hand in hand with almost equal increases in cargo growth. Thus it was not possible to reduce the existing overcapacity in the market. The rate level on the yearly average was considerably lower than costs. The market development for product tankers was on the other hand more satisfactory. The drop in crude oil prices in the fourth quarter of 2014 gave a boost to trade with oil products, and with it the demand for transport capacity.
Hamburg Süd liner services
Against a background of weak economic development in the majority of South American countries, accompanied in some cases by lower trading volumes, Hamburg Süd was able to increase its cargo volume by a modest 2.3 per cent only to 3.375 million TEU. Freight rates came under high pressure due to the additional capacity from the medium-sized vessels displaced from the Asia trades. The cascading into the North-South trades above all severely impacted the South America routes, causing an increase in tonnage capacity that could not be offset by the weak growth rates in carryings. Although the carriers attempted to reduce capacity on the South America routes especially in the off-season, capacity utilisation of the ship systems for large parts of the year was too low. Due to the stagnating and partially declining imports in Brazil and Argentina, the development of activities between North and South America and from Asia to the South American East coast was especially disappointing. Ongoing overcapacity contributed to the fact that the service between India/Pakistan and Asia as well as Northern Europe continued to post unsatisfactory results.
Despite increased carryings, bunker costs were reduced in total by around 11 per cent. In addition to the fuel prices which fell sharply from the fourth quarter of the year onwards, a further reduction in consumption through the deployment of more efficient ships and optimisations in operational flows contributed to this.
Overall, Hamburg Süd achieved a positive, albeit less than satisfactory result from liner services despite difficult market conditions.
Hamburg Süd ships and containers
As at 31 December 2014, the Hamburg Süd fleet comprised a total of 168 ships, 46 of which were owned by the group. Of these, 112 ships were deployed on liner services and 56 chartered-in ships were employed in tramp operations (bulkers, product tankers). As in the previous year, the fleet was expanded by additional ships in the “Cap San” series with a capacity of 9,600 TEU each. These were complemented by additional ships in the “San” class with a capacity of 9,000 TEU and a high number of reefer slots for refrigerated containers. This brings the number of ships in service with a slot capacity of at least 9,000 TEU to 13, mainly deployed with their large reefer capacity on the Asia-Europe and Europe-South American East coast routes. The Hamburg Süd subsidiary Aliança also introduced two 4,800-TEU wide-beam ships in its cabotage fleet, further enhancing cost efficiency. Five older and smaller ships were sold, and the container pool increased slightly to 468.000 units.
With an increase in total capacity in liner services to around 537,000 TEU, the average ship capacity rose from 4,437 TEU to 4,795 TEU, reflecting Hamburg Süd’s ongoing strategy to further improve the efficiency of its fleet. Another three Cap San newbuilds are scheduled for delivery in 2015.
Hamburg Süd tramp shipping
Given the ongoing serious overcapacity, earnings in the bulk shipping segment remained under pressure in all ship classes throughout the year. The Panamax spot index rate fell compared with the previous year from USD 9,500/day to USD 7,700/day. Operated by Rudolf A. Oetker, Furness Withy Chartering and Aliança Bulk, the bulk shipping activities of the shipping Group again failed to produce a positive result in 2014 and thus remained at roughly the same level as in the previous year.
The time charter rates (12 months) for modern product tankers with a load capacity of around 50,000 tonnes were at roughly the same level as in the previous year with USD 14,300/day, although a noticeable increase could be observed towards the end of the year. This business segment generated positive earnings.
Outlook for 2015
At the end of March of this year, Hamburg Süd took over the liner services of Compañía Chilena de Navegación Interoceánica (CCNI) between the West coast of South America on the one hand and Asia, North America and Europe on the other. This increases the shipping group’s transport volume by slightly less than 10 per cent, or around 300,000 TEU. In certain trade lanes Hamburg Süd achieves market leadership and is developing routes on which it has not previously operated. The integration will take place in the first half of 2015.
In order to expand the liner network and leverage the resulting logistical advantages, Hamburg Süd started operating the East-West trade lanes from the turn of the year. The collaboration with United Arab Shipping Corp. (UASC), with headquarters in Dubai, realised since the beginning of 2015 enables Hamburg Süd to provide slot capacity at competitive rates. In return, UASC obtains slots on selected South America routes operated by Hamburg Süd.
Through the collaboration with UASC Hamburg Süd is able to reduce its dependency on South America and offer its customers an extended network that is well accepted. It also allows the Shipping Group to tap new growth and cost reduction potential both on shore and at sea.
According to forecasts of the International Monetary Fund (IMF), the global economy and world trade are set to grow at a slightly higher rate than in 2014, by 3.5 per cent and 3.7 per cent respectively. The US economy in particular will continue to gain in momentum, and growth in the eurozone is also expected to be slightly higher. China is forecast to remain the driving force behind global growth with 6.8 per cent, albeit with a less dynamic pace.
This does not, however, imply a sustained recovery of container liner services in the coming year. On the back of low interest rates, fresh money is continuing to be pumped into shipping. As a consequence, a further acceleration of net slot growth is likely for 2015. With a rise in global container transports of around 5 per cent and anticipated record growth in slot capacity of 8 per cent, the overcapacity of container slots is continuing to increase. On the East-West trades this increase will focus on large ships with a capacity in excess of 10,000 TEU.
The past few years have seen the formation of four large consortia on the major East-West routes. In light of the pressure on freight rates, these collaborations are aimed at improving the cost of ocean transport, especially by deploying larger and more consumption-efficient ships. Efforts are also being made to achieve cost benefits through smarter management of the ship systems.
Positive effects for 2015 can be expected in the short term to continue to come from low fuel prices, which at least for the time being can offset the fall in freight revenues. However, the industry will see sustained earnings improvements only if strict cost and capacity manage¬ment is accompanied by sustained discipline in terms of rates.
In bulk shipping, the market environment is likely to further deteriorate in 2015, with charter rates and time charter equivalents currently have reached all time low levels. Net fleet growth is forecast at around 5 per cent. Unless China’s raw material imports increase substantially over the next few months, the growth in the volume of cargo will not be able to keep up with this figure, and Group-own tramp shipping activities would produce an even less satisfactory result than last year.
Given the relatively favourable trend in fuel prices and exchange rates, the Hamburg Süd shipping group is anticipating that operating results for 2015 will be higher than last year; however, this is to be seen against extraordinary expenses from the integration of the CCNI activities.