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Hapag-Lloyd hit by low freight rates

HAMBURG: March 24, 2017. Hapag-Lloyd reported a net loss of €93.1 million in 2016 on revenue that fell 12.5 percent from the previous year to reach €7.73 billion.

Despite a 12.3 percent drop in transport costs, it wasn't enough to offset a 15.4 percent decline in the average freight rate of US$1,036 per TEU due to "continued intense competition caused by overcapacities and subdued growth in demand being felt in all trades," said the company.

Hapag-Lloyd Hamburg 2The operating result fell from €310.3 million to €104 million during the year for an EBIT of €126.4 million, a drop of €240 million from the 2015 result.

"We had a very challenging market environment in the first six months of 2016," said CEO Rolf Habben Jansen. "Even though we performed relatively well in the industry in 2016, the bottom line is still that this result is not satisfactory," he noted.

With transport volume rising 2.7 percent last year to 7.6 million TEU, the company said it expects a moderate increase in the average freight rate and box volume this year, excluding the results of its impending merger with UASC.

"We expect some market improvement in 2017, but our success will largely depend on our ability to achieve more sustainable freight rates. Longer term, the lack of orders for new builds and the continued high scrapping figures point to a better equilibrium between capacity supply and demand," Jansen said.

Nevertheless the beginning of 2017 has seen the market "challenge" continue for Hapag-Lloyd because long term contracts have meant the company has not been able to benefit fully from rate increases, while bunker prices have risen "significantly".

"The key areas of focus for us in 2017 will be the launch of our new alliance as at April 01 and the rapid and seamless integration of UASC into Hapag-Lloyd," said Jansen. The merger is expected to accrue annual synergies of US$435 million from 2019, offset by a one-off transaction and integration cost of US$150 million.

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