With its acquisition of CP Ships, Hapag-Lloyd now belongs to the Top 5 in global container shipping. The integration is proceeding rapidly. In 2005, Hapag-Lloyd again increased its profit, improving slightly on the record level for the previous year.

?The acquisition of CP Ships is a giant step forward in securing the future of Hapag-Lloyd and will also benefit the Hamburg economy. The strengths of the two companies complement one another superbly. Hapag-Lloyd is thus moving up into the top group of world container lines,” stated Michael Behrendt, chairman of the executive board of Hapag-Lloyd AG, at the presentation of the Business Review 2005. He noted that Hamburg will be home to the world’s fifth largest shipping line.

Last year, Hapag-Lloyd Group achieved sales of ?3.2 billion, 19.9 percent more than the previous year’s ?2.7 billion. About 95 percent is generated by Hapag-Lloyd Container Line and the remainder by Hapag-Lloyd Cruises. Earnings before tax and amortisation of goodwill (EBTA) came to ?281 million, slightly up on the record level for the previous year (?280 million). “This is an outstanding performance, particularly considering the fact that in container shipping we were faced with significant cost increases, especially for bunkering and charter rates, causing additional costs of well over ?100 million,” Behrendt commented.

Global container transport also again grew rapidly in 2005. Volume rose by 8.6 percent compared with 2004 to 86 million standard containers (TEU = twenty foot equivalent unit). Hapag-Lloyd Container Line again grew faster than the market as a whole last year, carrying an overall 2.7 million TEU, 10.8 percent more than in the previous year. Sales rose from ?2.6 billion to ?3.1 billion. Profit at ?277 million was not quite up to the record level for the previous year (?278 million), despite the high additional costs. The main contributory factors were volume increases and the rise in average rates by 8 percent to US$1,353 per TEU.

What are the main reasons for Hapag-Lloyd’s excellent performance? Various factors are involved. The company has a decentralised, globally standard office organisation as well as IT systems that are leading for the industry covering the entire transport chain from consignor to consignee. “We book an order only once, no matter where it is in the world. This saves costs, avoids double entries and transmission errors and thus difficulties with the customer. Our employees are thereby relieved of routine work, boosting productivity. Then we have our homogenous fleet and our readiness to work in consortia. These are admittedly only minor elements by themselves, but taken together they enable us to put in an outstanding performance for our industry,” explained Adolf Adrion, the executive board member of Hapag-Lloyd AG responsible for container shipping.

Europe-Far East services also represented the strongest market in terms of sales and profit for Hapag-Lloyd in 2005. Transport volume reached 1.1 million TEU, 9.6 percent higher than the previous year. Corresponding to the market trend, transport volume for incoming services rose by 12.1 percent, again faster than volume in the opposite direction, which grew by 5.3 percent to 396,000 TEU. The growth is due to various factors, including the increase in transport capacity and the introduction of new services. The average freight rate rose by 5.7 percent as a result of the continuing high demand, particularly for services to Europe.

Transport volume for intra-Asian services also continued to grow rapidly. A crucial factor was the increased significance of China for the Asian economic region. China benefited from the relocation to it of production capacities of other Asian countries and also increased exports to neighbouring countries, particularly Japan. Thanks to its expanded capacities and comprehensive service network, Hapag-Lloyd benefited to an above-average extent from this development and in this trade grew much faster than the market on average.

On the Trans Pacific, Hapag-Lloyd could further expand its market position, transporting a total of 719,000 TEU and achieving growth of 15.6 percent, which was even up on the excellent growth rate the previous year (15.3 percent).

On the North Atlantic, Hapag-Lloyd again achieved high volume growth, up 7.8 percent to 665,000 TEU. Average freight rates rose generally in this trade by 15.1 percent, due in particular to the high demand exceeding the capacities offered.

Hapag-Lloyd also achieved good results for Latin America services, carrying 192,000 TEU, or 12.3 percent more than in previous year, thereby stabilising its market share despite fierce competition. The introduction of a new Chile direct service had a positive impact on volume development. Average freight rates surged by 15.6 percent, thanks mainly to improved cargo composition.

Last year, Hapag-Lloyd invested ?329 million, compared with ?74 million in 2004. The bulk of investment volume was accounted for by the containerships “Colombo Express” and “Kyoto Express”, delivered in 2005, as well as the taking into ownership of the “Berlin Express” and “Hong Kong Express”, which were hitherto chartered. Down payments for two of the three containerships ordered in January 2005 were also effected. Other investment involved the renewal or expansion of the container fleet. The other two containerships commissioned by Hapag-Lloyd in 2005 are chartered on a long-term basis (”Houston Express” and Savannah Express”). CP Ships accounted for investment of ?56 million, mainly for its container fleet.

Hapag-Lloyd’s containership fleet comprised 55 vessels with a total capacity of 226,000 TEU at the end of the year (compared with 51 ships with a capacity of 192,000 TEU the previous year). Most of the ship capacity is owned by Hapag-Lloyd or chartered on a long-term basis, the average age of ships being about seven years. Hapag-Lloyd Cruises continued to deploy four cruise ships.

Hapag-Lloyd Cruises continued its qualitative growth in the last financial year, achieving sales of ?148 million, 15.7 percent up on the previous year. It significantly increased its total of passengers and passenger nights compared with the previous year. A crucial factor was the acquisition of new business. By offering higher quality services, Hapag-Lloyd Cruises even achieved a slight increase in average turnover per day, against the market trend, and could thus significantly improve on its already high profit the previous year. Its gratifying performance was also attributable to the increased capacity utilization of its cruise ships. Negative factors were higher bunker and port costs than in the previous year.

“CP Ships is what one calls a strategic fit. It is a successful company, there is scarcely any overlapping in the liner network, the fleet is an excellent supplement to ours and we have a similar corporate philosophy and culture,” Behrendt stated in explaining the reasons for the acquisition. He added: “We had already been watching CP Ships for a long time and had identified it as an ideal candidate when we entered into negotiations last year. We could convince TUI of our plan and succeeded against other bidders in the only possible time window.” CP Ships transported 2.2 million TEU with 78 vessels in 2005, achieving pro forma sales of $4.2 billion for the whole of the year and pro forma EBTA of $188 million.

Hapag-Lloyd is forging ahead with the integration of the operative business of CP Ships. To respond to the increased volume particularly in the Mediterranean region and Latin America, the Hapag-Lloyd organisation has been expanded by a further two regions to supplement the former three regions. Region South Europe (Genoa) is responsible for the Mediterranean region and Africa. The region headquarters for Latin America is based in Tampa. The combining of services will start on the North Atlantic. The first ship will be the “Turin Express”, which will begin loading in Los Angeles on May 26th. All other trades will be successively handed over to Hapag-Lloyd from mid-July. Services are to be completely integrated by the end of 2006.

After the successful integration of CP Ships, which is to be completed by 2008, we expect to achieve synergies at least ?180 million. They will come mainly from the fact Hapag-Lloyd only has to expand its previous office organisation and IT systems. Another benefit is that headquarters functions will be concentrated in Hamburg. The integration will involve the loss of 2,000 jobs in over 200 locations worldwide. Hapag-Lloyd will have a total of about 7,000 employees in future. Our aim is to boost our productivity further after the integration and improve our competitiveness generally.

Hapag-Lloyd remains optimistic about the future of global container transport. With growth rates of between 7 and 8 percent, container shipping has been outpacing world trade for decades. Container transport volume is expected to rise from 86 million TEU today to 118 million TEU by 2010. That would be an increase of 32 million TEU within the space of only five years. The forecasters are convinced that this development will continue in the next few years. The high growth in the past and the positive outlook for the future have led to a boom in orders at shipyards, leading in the short term to a surplus of tonnage that may also affect developments in 2007. The market, particularly the Asian services, already anticipated this at the beginning of the year, as reflected in increasing pressure on freight rates, even though the ships on the dominant leg, to which capacity must be oriented, continue to achieve a capacity utilization of over 90 percent. On the North Atlantic rates remain stable.

“We have noted significant growth in volume at Hapag-Lloyd in the first few months of the year. Our ship capacity is fully utilized for April, and in fact we have already had to leave cargo standing because vessels are overbooked. Rates have now passed the low point and are already increasing for services between Asia and Europe. We intend to and will participate in the continued growth of container shipping and are expanding our fleet accordingly. There have always been cycles in shipping; they are not new for us. Yet container shipping has always been a profitable business. And we are confident that it will remain so in future,” Behrendt concluded.

Source: Hapag Lloyd

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