Hapag-Lloyd to pass sulphur costs on to customers

Hapag-Lloyd to pass sulphur costs on to customers
Rolf Habben Jansen said 2018’s market environment was not easy

The world’s fifth-biggest shipping liner has said that it will have to pass the costs of new sulphur regulations on to customers.

Hapag-Lloyd said the new regulations would cost it US$1bn a year from 2020 and it would be introducing a new surcharge to cover that.

New global regulation requires carriers to burn fuel which has less than 0.5% sulphur. Previously the global cap was 3.5%.

The International Maritime Organisation is trying to reduce shipping’s sulphur dioxide emissions as the gas can cause acid rain and deforestation and is bad for asthma sufferers.

In its 2018 annual report, Hapag-Lloyd said it welcomed the regulation but that all carriers would face increased costs as they switch to cleaner, more expensive fuels or scrubbers.

“We will not be able to bear these costs alone,” the carrier said, so it has developed a marine fuel recovery mechanism which will replace all other fuel surcharges.

The company also said it plans to implement “annual savings” from 2021 of US$350 to US$400m a year.

Cost-cutting will focus on network optimisation, terminal partnering and procurement and container steering, the company said.

Terminal partnering involves working with a terminal to “increase quality” and “reduce port stay”.

The company is also pursuing digitalisation. It now processes about 6% of its bookings online and hopes to increase this to 15% by 2023.

Since taking over the United Arab Shipping Company, Hapag-Lloyd said it has achieved synergies of US$435m.

The merger has increased the company’s transport volumes, revenue and profit – although the profit margin is down.

Bunker prices and non-bunker transport expenses both increased significantly – with the bunker price up by US$103 a tonne.

“The market environment in the financial year of 2018 was certainly not easy,” said executive board chair Rolf Habben Jansen.

“In the first half of the year, freight rates were initially below the original expectations due to new deliveries of container ships and strong price competition in some trades. At the same time, we had to content with significantly bunker prices and increased costs over the course of the year.”

“However,” he continued, “these effects were partially offset by higher global transport volumes, increasingly better freight rates and savings on the cost side.”

Jansen also said that the US-China trade war was a risk to shipping lines’ businesses. This risk would continue in 2019, he said, adding that the associated “subdued economic expectations” were reflected in Hapag-Lloyd’s share price, particularly at the end of the year.

The company’s share price was about €30-35 (US$33-40) for most of 2018 but fell to €22-25 (US$25-28) from October 2018 onwards.