Rising fuel costs + low freight rates = net loss for container fleets

More sad faces at major container lines. Hapag-Lloyd blames soaring fuel costs for 2nd quarter loss.

Bloomberg today reported that Hapag-Lloyd AG, Europe’s fourth-largest container line, reported a second-quarter loss after soaring fuel costs offset modest improvements in freight rates. The CEO, Michael Behrendt, was quoted as saying, “High bunker prices in particular cause our expenses  to increase dramatically – they are by far the biggest cost factor for our business.” The company said the average fuel price jumped 14 percent to $694 per ton during the last year. Freight rates did not keep pace. The weighted average freight rate in the second quarter increased 7.4 percent to $1,594 over the first quarter of 2012, and was 4.1 percent higher than Q2 2011. Behrendt noted succinctly, “The cargo on board our vessels has to cover the cost of transportation.” Sad but true.

Hapag Lloyd operates a fleet of 147 containerships with a total fleet TEU capacity of 667,531 TEU. The company took delivery of the 10,000 TEU Hamburg Express last month, and has another nine 13,200 TEU ships on order.

Hapag-Lloyd is in good company. Bloomberg noted that A.P. Moeller-Maersk and CMA CGM both posted losses last year. The combination of overtonnage on key routes, sluggish growth in world trade volumes, soaring fuel costs and persistent low freight rates will not get better soon, and it is critical for fleet operators to seek out new ways to reduce operating costs.

To that end, I encourage you to attend the 2012 SHIPPINGInsight Fleet Optimization Conference, October 8-10, in Stamford, Connecticut, where industry experts will deliberate on technical solutions and best practices to optimize efficiency of ship operations.

I am especially happy to tell you that Clay Maitlandhas agreed to serve as keynote speaker for the conference. I am certain his unique expertise and insights will enrich the debate. He joins a top-notch roster of more than 30 speakers. You can register online and take advantage of early-bird discounts.

Note: This post originally appeared in the Maritime Professional, one of our media partners.

The Relentless Law of Supply and Demand

Even China’s go-go shipbuilding industry is feeling the effects of the slowdown in international trade and shipping overcapacity, which shows no signs of easing in the short term. Shipping fleets will need to trim operating costs to survive in this environment.

You may have seen the news item in MarineLink.com dated July 29 that China’s shipyards suffered a 49 percent plunge in orders during the first 6 months of 2012. This is clearly the result of a glut of shipbuilding capacity trying to sell into a marketplace already sufferening from overcapacity and low freight rates. The surge in shipbuilding in China was fueled by the country’s appetite for raw materials and low-cost government financing for new ships. Many of the ships ordered during the binge of 2007 are still trickling out of the shipyards to face an uncertain employment. The Baltic Dry Index, according to the article, has dropped 26 percent in the past year to 958. In May 2008 it was 11,793.

The global fleet of capesize vessels has doubled in the last five years according to Clarkson, and three-year charter rates are around $10,000 per day, down from $55,000 five years ago.

In this economic climate, it becomes even more imperative for ship operators to reduce operating costs and improve efficiencies in ship operation. Fuel is the most immediate target, since it represents a huge percentage of operating costs, but fleets will need to put all aspects of operating costs under scrutiny.

That’s the idea behind the ShippingInsight Fleet Optimization Conference, which is scheduled to take place October 9-10 in Stamford, Connecticut. More than 30 speakers have been lined up to address their areas of expertise, including ship design, hull performance, alternative fuels, bunker management, regulatory compliance, voyage management, weather routing and KPIs. Registration is now open at www.shippinginsight.com.

Note: This post was originally written for the Maritime Professional blog.