Hapag-Lloyd braces for container demand downtick, tonnage increase in H2

A slowing economy is likely to dampen transport volumes in the second half of 2023, following declining demand and weaker freight rates in the first half, container shipping company Hapag-Lloyd AG said Aug. 10.

That came alongside a mounting flow of newbuild vessels arriving out of shipyards, following the high demand and strained supply chains which resulted in a shortage of vessels and an ordering bonanza during the peak years of the coronavirus pandemic.

Analysts at S&P Global Commodity Insights forecast global GDP growth to slow to 2.4% in 2023 from 3.1% in 2022, with global industrial production slowing to 1.1% growth in 2023 from 2.8% in 2022.

"Investment and industrial production have slowed sharply or contracted in industrialized nations, which in turn has hurt international trade and manufacturing in emerging markets," Hapag-Lloyd said in its H1 report.

Leading indicators for demand and production in the manufacturing sector pointed to further weakness, it said.

Transport volumes in 2023 could be 1.6% lower on the year, Hapag-Lloyd said, citing consultants.

The first half of the year saw bearish developments. Hapag-Lloyd's transport volume in the first half of the 2023 financial year was 5.8 million twenty foot-equivalent units (TEU), down 3.4% year on year, primarily owing to lower demand for container transport in Southeast Asia and European trade routes to North America, the company said.

"Weaker demand and lower freight rates are having a very noticeable impact on our earnings," Hapag-Lloyd CEO Rolf Habben Jansen said in the company's statement.

The average freight rate fell 38% to $1,761/TEU due to "the normalization of supply chains" and weaker demand, the company said.

Platts, part of S&P Global, assessed its container index at an average of $1,138/forty foot-equivalent unit in H1, down 82% on the year. Platts assessed it at $1,109/FEU on Aug. 9.

Lower bunker costs

Hapag-Lloyd's transport expenses in H1 were lower on the year, at $6.3 billion, primarily due to lower expenditures for demurrage and detention and a decreased bunker price of $625/mt, down 11%.

The S&P Global Bunkerworld 0.5% sulfur fuel oil index, a weighted daily index across 20 key ports, averaged $601/mt in H1, down 31% on the year. It was $568/mt on Aug. 9.

Growing fleet

"A significant increase in vessel deliveries is planned for 2023," Hapag-Lloyd said.

That momentum was already being felt. Deliveries of new container ships during the first seven months of the year reached a new record 1.2 million TEU, beating the previous record by 0.2 million TEU, Niels Rasmussen, Chief Shipping Analyst at BIMCO, said in a note.

The order book was so large that ship deliveries were expected to exceed the previous full-year record of 1.7 million TEU for the next three years in a row.

Based on estimated delivery dates, a total of 2.4, 2.9, and 1.9 million TEU were expected to be delivered in 2023, 2024 and 2025, respectively, according to BIMCO data.