CEO of Hapag-Lloyd, one of world’s top ocean shippers, says the outlook has changed for global economy, trade demand

Rolf Habben Jansen, CEO of Hapag-Lloyd, the world’s fifth-largest ocean service, tells CNBC he has an improved view on trade for the relaxation of 2024. Conversations with shoppers and different logistics corporations have led the transport CEO to a extra optimistic view on demand in the second half of the yr than projected in earlier forecasts.

“We also see that inventories are depleted in many cases and so far we’ve seen a good recovery after Chinese New Year,” Jansen mentioned. “So we’ve been fairly happy with that.”

The firm reported a steep drop in its 2023 net profit this week and slashed its dividend, which led to a inventory decline. It was the third-best group revenue in firm historical past, albeit considerably decrease than 2022, which was fueled by container congestion and excessive freight charges.

“The last quarter of 23 was difficult because rates were at unsustainable levels,” Jansen mentioned. “I think everybody noticed that. We saw them coming up a bit towards the end of the quarter, and then of course, the Red Sea crisis … which again changed the market.”

Added local weather prices from Red Sea diversions

While the Red Sea issues have resulted in a transport container price spike, Hapag-Lloyd is forecasting a lower in its earnings this yr as prices enhance associated to the trade diversions from the Red Sea.

According to SONAR, the value of 40-foot containers began its run-up in the U.S. on Jan 3, starting from $3,063-$3,763 to a peaked on Feb. 9 from $5,353-$7,329. While charges have now declined, U.S. corporations are paying extra, with charges from Asia to West Coast ports up 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.

Attacks by the Houthis on business transport pursuits in the Red Sea proceed, with a tanker attacked in the Red Sea Friday whereas underway northbound in the Red Sea, although the tanker was empty at the time and continued on its journey, with no crew accidents reported. The day prior, the tanker was assessed to have been the topic of a close to miss 47 miles southeast of Aden, Yemen.

“It’s a concerning situation and I think the [Red Sea] outlook is very difficult,” Jansen mentioned. “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 route round the Horn of Africa is longer and extra gas is being burned by container vessels. In addition to the added prices, in line with Sea-Intelligence, the Red Sea diversions might enhance carbon dioxide emissions by 260%–354%. 

As a consequence, ocean carriers with Europe-bound vessels might be paying greater emissions liabilities below the EU Emissions Trading System. According to maritime expertise agency OceanScore’s calculations, with the diversions growing gas consumption and crusing pace from 16-20 knots to make up a while, the emissions buying and selling system imposes a 50% legal responsibility for voyages both originating from the EU or touring to it, and 100% legal responsibility for ships docked at an EU port or finishing transits from one EU bloc port to a different.

The longer voyages are making a difficult and expensive atmosphere for Hapag Lloyd which has a purpose of being net-zero carbon by 2045.

“That is definitely a big problem,” Hansen mentioned. “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.”

The ocean service trade has added roughly 5% vessel capability to offset delays and container utilization. Hansen says by crusing sooner than regular it has elevated capability extra in the vary of an extra 8%-10% capability.

New ocean alliance with Maersk

The discount in global freight and schedule reliability are headwinds ocean carriers have been going through for months. One technique to mitigate these challenges is by decreasing operational prices and growing buyer satisfaction by means of the use of ocean alliances.

In January, Maersk and Hapag-Lloyd introduced the Gemini alliance, which can take impact early subsequent yr. Both carriers say they may obtain a schedule of reliability of larger than 90% as soon as the new community is totally rolled out, which might be an enormous enchancment, with Sea-Intelligence calculating global reliability at round 51.6%.

The Gemini alliance could have each Maersk and Hapag-Lloyd collectively allocating round 290 ships. It might be run by utilizing a spoke and hub system related in different transportation methods.

“We believe in the hub and spoke system because it essentially is a system that works also in many other transportation modes,” Jansen mentioned. “When you look at the express industry or when you look at air freight, it’s a very common and known system. The network is much more resilient than a traditional network where everything goes end to end.”

“You need more than one bus to run a bus rotation, and it’s essentially the same for ships,” mentioned Lars Østergaard Nielsen, Maersk’s vice chairman of operations for the Americas. “We need to make sure that they go to the right ports at the right time and in the right sequence all over the world.”

Maersk and MSC, the world’s largest service, introduced they might be discontinuing the 2M alliance in 2025, with Maersk saying reliability as a spotlight was key in selecting a brand new associate.

“With our new partner, Hapag, we have a very clear focus on making sure we deliver a new level of reliability to our customers,” Nielsen mentioned. “For many years, it has been hard to get the reliability much above 50%. So essentially every other shipment would have been delayed.”

Delayed shipments decelerate the turning of containers that are used to maneuver the freight the ocean carriers receives a commission to maneuver. More effectivity in concept would imply larger container utilization.

Peak transport season outlook

In addition to the ongoing Red Sea diversions and Panama Canal drought restrictions, Hansen mentioned U.S. shippers, together with most notably retailers, are planning forward this yr for peak transport season forward of potential East Coast and Gulf ports strikes, in step with what logistics determination makers instructed CNBC at one of the world’s largest maritime/logistics conferences TPM, held in California final week.

“I would also expect that peak season is going to start a little bit early,” Hansen mentioned. “I also expect that there’ll be quite a number of people who tried to bring in their goods somewhere between June and August.”