Rolf Habben Jansen, the CEO of Hapag-Lloyd, the world’s fifth-largest ocean carrier, conveyed to CNBC his revised perspective on trade dynamics for the remainder of 2024.
Engagements with clients and fellow logistics entities have contributed to the shipping chief’s more sanguine outlook on demand for the latter half of the year compared to earlier prognoses.
“We also see that inventories are depleted in many cases and so far we’ve seen a good recovery after Chinese New Year,” Jansen remarked. “So we’ve been fairly happy with that.”
Although the company disclosed a significant decline in its net profit for 2023 this week and implemented a dividend reduction, precipitating a decline in its stock value, it marks the third-highest profit recorded in the company’s history, albeit notably lower than the exceptional figures of 2022, driven by container congestion and elevated freight rates.
“The last quarter of 2023 was challenging due to unsustainable rate levels,” noted Jansen. “I think everybody noticed that. We saw them rise marginally towards the end of the quarter, and then, of course, the Red Sea crisis … which once again altered the market landscape.”
Climate Costs from Red Sea Diversions
In light of the Red Sea disruptions leading to a surge in shipping container rates, Hapag-Lloyd anticipates a decline in its earnings for the current year due to escalating costs associated with trade diversions from the Red Sea.
According to SONAR data, the price of 40-foot containers in the U.S. began its ascent on January 3, ranging from $3,063-$3,763, peaking on February 9 at $5,353-$7,329.
Although rates have since moderated, U.S. companies are bearing higher expenses, with rates from Asia to West Coast ports rising 155% year-to-date, Asia to East Coast up 129% year-to-date, and Asia to the Gulf Coast up 71.2% year-to-date.
As attacks by the Houthis on commercial vessels persist in the Red Sea, a tanker came under attack while navigating northbound on Friday. However, the tanker was empty at the time and continued its journey without crew injuries reported. The day before, the tanker narrowly avoided an incident 47 miles southeast of Aden, Yemen.
“It’s a concerning situation, and I think the [Red Sea] outlook is very difficult,” remarked Jansen.
“We hope that it will be over in a couple of months. But I’m very well aware that despite all the efforts that many countries are undertaking, some also believe that it might last quite a bit longer. In the end, we will do whatever we can to keep our people safe, even if that means that transit times are going to be a little bit longer.”
The alternative route around the Horn of Africa entails longer distances and increased fuel consumption for container vessels. Moreover, as per Sea-Intelligence, the Red Sea diversions could elevate carbon dioxide emissions by 260%–354%.
Consequently, ocean carriers operating Europe-bound vessels will face augmented emissions liabilities under the EU Emissions Trading System.
According to maritime technology firm OceanScore’s estimations, diversions heighten fuel consumption and necessitate faster sailing speeds ranging from 16-20 knots to compensate for lost time.
The emissions trading system imposes a 50% liability for voyages originating from or destined for the EU, and a 100% liability for ships berthed at an EU port or completing transits between EU bloc ports.
The prolonged voyages pose significant challenges and costs for Hapag-Lloyd, which aims to achieve net-zero carbon emissions by 2045.
“That is definitely a big problem,” acknowledged Hansen. “Today we have to sail faster and we have to sail more. So that does not help us to achieve those sustainability goals. I would hope, however, that this is a temporary situation and that within some months, we can go back to the Suez and then of course, we can go back to the original trajectory.”
To mitigate delays and container shortages, the ocean carrier industry has augmented vessel capacity by approximately 5%. Hansen notes that sailing faster than usual has effectively increased capacity by an additional 8%-10%.
New Ocean Alliance with Maersk
Global freight reduction and schedule reliability issues have plagued ocean carriers for months. One strategy to counter these challenges involves minimizing operational costs and enhancing customer satisfaction through ocean alliances.
In January, Maersk and Hapag-Lloyd disclosed the Gemini alliance, slated to commence early next year.
Both companies assert that once the new network is fully operational, they will achieve schedule reliability exceeding 90%, a significant enhancement compared to the global reliability estimated at approximately 51.6% by Sea Intelligence.
The Gemini alliance will see Maersk and Hapag-Lloyd jointly deploying around 290 vessels. It will be managed using a spoke-and-hub system akin to other transportation modes.
“We have faith in the hub-and-spoke system because it’s a model that thrives in various other transportation sectors,” stated Jansen. “Whether it’s the express industry or air freight, it’s a widely adopted system. This network offers greater resilience compared to a traditional end-to-end model.”
“To operate a bus rotation, you need more than one bus, and the same principle applies to ships,” explained Lars Østergaard Nielsen, Maersk’s vice president of operations for the Americas.
“We must ensure they reach the right ports at the right time and follow the correct sequence worldwide.”
Maersk and MSC, the world’s largest carrier, declared their intention to terminate the 2M alliance in 2025, citing a focus on reliability as a pivotal factor in selecting a new partner.
“With our new partner, Hapag, we are steadfastly committed to delivering a new standard of reliability to our clients,” Nielsen affirmed. “For years, achieving reliability above 50% has been challenging. Essentially, every other shipment would encounter delays.”
Delayed shipments impede container turnover, crucial for transporting the freight that ocean carriers are compensated to deliver. Improved efficiency theoretically translates to higher container utilization.
Peak Shipping Season Outlook
In conjunction with the ongoing Red Sea diversions and Panama Canal drought restrictions, Hansen noted that U.S. shippers, particularly retailers, are proactively preparing for peak shipping season this year in anticipation of potential strikes at East Coast and Gulf ports.
This aligns with insights shared by logistics decision-makers during TPM, one of the world’s largest maritime and logistics conferences held in California last week.
“I anticipate that peak season will commence slightly earlier this year,” Hansen remarked. “Moreover, I anticipate a significant influx of goods being imported between June and August.”
