Hapag-Lloyd is raising its profit forecast for 2024 for the second time, following in the footsteps of rival ocean carrier Maersk as the container shipping industry continues to benefit from elevated freight rates.
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The German logistics giant said earnings before interest and taxes (EBIT) is now expected to range between $1.3 billion and $2.4 billion, up from the previous forecast between no profit and $1.1 billion. When excluding impacts from depreciation and amortization, EBITDA could be between $3.5 billion and $4.6 billion.
Hapag-Lloyd’s expectations were less concrete in March, with the liner calculating anywhere between a potential EBIT loss of $1.1 billion to a potential $1.1 billion gain in EBIT.
“Against the backdrop of very volatile freight rates and major geopolitical challenges, the forecast is subject to a high degree of uncertainty,” Hapag-Lloyd said in a statement.
The freight rates have largely been attributed to the ongoing Houthi attacks on commercial vessels in the Red Sea, which have forced ocean carriers to mostly avoid the waterway altogether. As a result, container vessels have been rerouting around Africa’s Cape of Good Hope since December, leading to longer lead times for goods, more fuel burned and less overall freight capacity out on the oceans.
All of these factors have led to the escalation of freight rates, but other knock-on effects in the months after the mass diversions have further exacerbated the problem, especially since early May, when rates experienced a three-month decline from pre-Lunar New Year totals.
Congestion at major global ports including Singapore, Shanghai and Kelang in Malaysia has piled up dramatically, slowing the movement of goods and contributing to a shortage of empty containers—a primary headache for the world’s largest exporter: China. And in the U.S., there’s been stronger-than-expected demand as shippers rush to bring in more goods ahead of the peak shipping season.
According to data from the Drewry World Container Index (WCI) , ocean spot freight rates measured across eight major trade lanes jumped 10 percent in one week to $5,868 per 40-foot container as of July 4. Since May 2, these rates have more than doubled at a rate of 117 percent. Going further back, the rates have skyrocketed a whopping 325 percent since Nov. 30, when they were $1,382 per container.
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Containers coming out of China are significantly propping the wider rate increases up. For example, prices for 40-foot containers on the Shanghai-to-New York route increased 17 percent week over week to $9,158 on average, marking the highest cost of all eight trade lanes. Cargo traveling from Shanghai to Los Angeles saw a 12-percent increase to $7,472 per container.
The Shanghai Containerized Freight Index (SCFI) has reached its highest level since August 2022, inching up 0.5 percent in the week prior to 3,733 points. The index shot up 116 percent since March 29, and 276 percent since Nov. 24. This index covers 13 trade lanes out of the port, which is the largest in the world by 20-foot equivalent units (TEUs) handled.
Last month, maritime trade advisory service Sea-Intelligence estimated that container prices on the Asia-to-Europe trade lanes could reach $20,000 on average based on the lengthier routes vessels are taking at sea.
With freight rates continuing to rise and no apparent end to the Red Sea crisis in sight, Hapag-Lloyd has plenty of reason to expect a better bottom line. Despite the wider hiccups posed to shippers and the overall safety concerns of those at sea, the container shipping industry already benefited significantly financially in the first quarter, generating $5.4 billion in net profits.
The ocean carrier still isn’t sold that a ceasefire between Israel and Hamas would bring an end to the Houthi-led onslaught. A company spokesperson told Reuters in June that it would take at least four to six weeks to rearrange schedules and for operations to return to normal, even after resuming voyages through the Suez Canal.
The guidance raise accompanied Hapag-Lloyd’s preliminary earnings for the first half of 2024. The container shipping firm said EBIT was roughly $900 million, still down from $2.8 billion in the year prior. EBITDA was approximately $2 billion, nearly half of the $3.8 billion pulled in during the 2023 first half.
Hapag-Lloyd did not reveal any information related to revenue, both within its outlook and its preliminary results. The ocean carrier is expected to release its official first-half results for 2024 are on August 14.
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