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Hapag-Lloyd expects lower operating result for 2014 as freight rates drop

Hapag-Lloyd expects lower operating result for 2014 as freight rates drop
Hapag-Lloyd slumped to a EUR173.3m ($231.5m) loss for the first half of 2014 as low box rates took their toll, and it does not expect things to get better for the year as whole

The first half loss was more than double the EUR72.7m it lost in the first half of 2013. In the second quarter Hapag-Lloyd lost EUR54.2m compared to a EUR20.9m profit in the same period of 2013.

Revenues for the first half were down slightly at EUR3.21bn compared to EUR3.36bn. The drop in revenues was reflected in the average freight rate in the first half of $1,424 per teu, a 6.4% drop on 1H 2013's $1,522 per teu. Announced freight rate increases failed to take hold due to pressure from competition, and the company suffered from an unfavourable change in the euro/dollar exchange rate.

The company's total vessel count was identical at the end of the first half this year and last at 154 ships, but aggregate capacity rose 6% to 777,000 teu. The increase in capacity is owing to Hapag-Lloyd employing ten new 'Hamburg Express' class 13,200 teu ships within the first half. Fresh financing for ships and containers pushed the company's net debt up to EUR2.6bn.

Hapag-Lloyd forecasts a high risk of an overall reduction in the freight rate for 2014, reversing the assessment in its 2013 annual report. The underlying cause of the problem is a growth in the container fleet that continues to outpace demand growth from global trade, and a low idle fleet. Overall, Hapag-Lloyd expects its operating result for the year to decrease from the EUR67m it made 2013; the overall loss for the group last year was EUR97.4m.

The company also faces substantial costs in 2014 should the integration of Compañía Sud Americana de Vapores' (CSAV) container operations go ahead as planned. The merger is progressing well through regulatory approvals and Hapag-Lloyd's board expects the deal to close in the fourth quarter.