Depressed rates push CMA CGM, Hapag-Lloyd into red territory

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Container_ship-cma cgmDespite volume growth, French liner CMA CGM reported a net loss of US$100 million in the first quarter of 2016 from a net profit of $406 million in the same quarter of the previous year, as overall industry freight rates went south.

The company said volumes rose 2.9% during the first quarter to 3.2 million TEUs, beating the market which grew by 1.2%. The increase was mainly attributable to growth in the trans-Atlantic and trans-Pacific lines operating to and from the United States, which offset the decrease in volumes carried between Asia and Europe, where the group had scaled back its capacity in response to weaker demand.

Average revenue per TEU fell 17.6%, a decrease that reflects the ongoing imbalance between supply and demand, said a company statement.

Revenue came in at $3.4 billion for the period, down 15.3% as compared to first-quarter 2015 when the group benefited from particularly favorable freight rates and volumes.

Core EBIT (earnings before interests and taxes) reached $3 million, down from $406 million in the same period in 2015.

Rodolphe Saadé, group vice-chairman, said, “In a very difficult environment, we have in the first quarter recorded an increase in volumes above the market average, while maintaining a positive core EBIT margin. We will continue our strict financial discipline, including the implementation of a significant cost reduction plan. In addition, we are moving forward on our strategic projects, namely the proposed acquisition of NOL and the creation of a new operational alliance OCEAN with a launching anticipated in April 2017.”

Looking forward, CMA CGM said it has initiated a new plan to cut costs by $1 billion within 18 months. The program will be rolled out in 2016.

It also observed a recent trend on the Asia-Europe and Asia-Mediterranean lines showing a slight improvement in freight rates since May 1, 2016, but added that the environment remains fragile.

CMA CGM continued with the proposed acquisition of NOL and has already received some of the required clearance from the relevant regulatory authorities. The European Commission as well as Indian authorities have approved the proposed acquisition.

On April 20, 2016, CMA CGM announced it was forming the Ocean Alliance operational partnership with Cosco Container Lines, Evergreen Lines and Orient Overseas Container Lines. The alliance will have a fleet of 360 vessels that will operate across 40 shipping lines, and offer services on the following major global shipping routes: Asia-Europe, Asia-Mediterranean, Asia-Red Sea, Asia-Middle East, trans-Pacific, Asia-North America East Coast, and trans-Atlantic. It is expected to be launched in April 2017, following clearance from the regulatory authorities.

Hapag-Lloyd’s earnings nosedive

Meanwhile, Hapag-Lloyd recorded a net loss of EUR42.8 million (US$48 million) in the first quarter from a net income of EUR128.2 million in the same period the previous year. Like CMA CGM, the German box carrier saw volumes rise but freight rates dive in a very challenging first quarter of 2016.

Transport volume increased by 2.1% to 1.81 million TEUs in the first three months of 2016. However, the average freight rate dropped significantly to $1,067 per TEU from the prior-year period’s $1,331 per TEU.

The sharp decline in the freight rate prompted revenue to fall from EUR2.30 billion in the previous year to EUR1.93 billion in the reporting period.

The negative effects of the difficult market environment were partly offset by cost-cutting and efficiency measures and by a significantly lower average bunker consumption price, said the shipping line.

Hapag-Lloyd reported a positive EBITDA of EUR123.4 million in the first quarter of 2016 from the previous EUR283.6 million. EBIT came to EUR4.8 million from the prior-year period’s EUR174.3 million.

For 2016 as a whole, Hapag-Lloyd is still forecasting a moderate increase in EBITDA and a clear rise in EBIT compared with the previous year.

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