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(HPGLY) – Hapag-Lloyd CEO Cautious Despite High Demand, Rates

Demand for ocean shipping is healthy again and freight rates are high, but Hapag-Lloyd Aktiengesellschaft (OTC: HPGLY) CEO Rolf Habben Jansen doesn’t want to “get carried away,” cautioning there still could be economic hits to come from the continuing coronavirus pandemic. 

“The rates on the trans-Pacific have been very, very strong. Also Asia and Europe have been strong. Lately Latin America has been going up,” Jansen said during a press briefing last week.  

“Volume has not been as severely impacted by COVID-19 as we expected,” Jansen said. “Initially expectations were there was going to be a double-digit decline in volume.”

Volume hit its low mark in March, when much of the world was shut down due to COVID-19 and the number of blanked sailings grew to levels ports hadn’t seen. 

“One of the things we’ve certainly learned this year is that if demand is not there, you have to take out the cost,” Jansen said. “In April, we were facing a loss of revenue of about $200 million from one month to the other. You had to do something.”

He said canceled sailings are now near zero and volume has rebounded far better than the German container carrier had feared.

“There has been fairly strong recovery, particularly on the east-west, from July,” he said. “The industry in general has been able to react very well.”

He said the container carrier continues to do all it can to ensure its customers have uninterrupted supply chains.

“A lot of people have faced all sorts of disruptions this year,” Jansen said. “On the whole, shipping has been able to keep goods flowing.”

And flowing they are.

“If you go back a couple of months, nobody would have expected that demand would be as strong today as it is right now,” he said. “The trans-Pacific is well above what it was a year ago. Right now when you go to the experts’ model, they expect strong demand to continue at least until Chinese New Year, but many also think that it will last after that as inventory is fairly low in quite a lot of markets.” 

In fact, the demand for goods in the United States is incredibly strong and is believed to be driven in part by Americans’ home improvement projects undertaken instead of vacations and restaurant and movie outings, Jansen said.   

“I don’t think anyone expected that demand would be so strong,” he said. 

“Equipment is very tight. We’ve seen that traditional trade patterns have been very much disrupted over the last six months,” Jansen said. “Equipment in Asia is very tight at this point in time and it is actually tight around the globe.”

An end — or at least a lull — to the COVID-19 crisis has allowed Hapag-Lloyd to concentrate on its mission. 

“Our focus will remain on profitability, cost control and making sure we have a healthy balance sheet and continue to reduce and repay debt,” Jansen said. “Overall we’re roughly on track.”

Last week Standard & Poor’s (S&P) upgraded Hapag-Lloyd’s credit rating from B+ to BB- with a positive outlook. Hapag-Lloyd said this is its highest rating it has received since S&P initiated its research in 2010. 

S&P also raised Hapag-Lloyd’s senior unsecured bond rating from B- to B.

“The outlook for the rest of the year has not deteriorated,” said Jansen in last week’s briefing, cautioning, “I don’t get carried away. This entire pandemic will have a clear effect on the global economy.”

Hapag-Lloyd profit swells despite shrinking volumes

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Higher costs hurt Hapag-Lloyd more than coronavirus in Q1

Click for more American Shipper/FreightWaves stories by Senior Editor Kim Link-Wills.

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