Hapag-Lloyd to seek cost cuts in 2024 as Red Sea crisis hits profit margins

German container shipper Hapag-Lloyd said on Thursday the global oversupply of container ships and a crisis in the Red Sea will force it to cut costs in 2024. It said it is adapting sailings and port stops following a bruising 83 per cent fall in net profit.

Ship operators face prolonged disruption while Yemen-based Houthis are attacking vessels travelling on one of the world’s busiest routes, wiping out the benefit from higher freight rates with costly redirections around Africa.

Red Sea crisis exacerbates pressures

Hapag-Lloyd’s problems chime with those of competitors such as Maersk and CMA CGM, exacerbated by the arrival of additional ships ordered during the pandemic years when they posted record profits due to logistics hiccups.

“We expect the market environment to continue to be difficult given the large number of ship deliveries this year,” said chief executive Rolf Habben Jansen.

“We need to further reduce our per-unit costs in order to remain profitable and competitive, going forward,” he said.

The world’s fifth-biggest container liner operates 266 ships and plans to save on the procurement side and adjust services, he added.

Consolidation of services

In a call with reporters, Habben Jansen said this could include faster sailings, changes to departure and delivery ports, and operational efficiencies.

A collaboration with competitor Maersk, beginning February 2025, would also help, he said.

Asked whether adjustments meant cuts to sailings, Habben Jansen said the Red Sea crisis had rather enforced route changes.

Hapag-Lloyd established land corridors in January through Saudi Arabia to mitigate the impact on its business from Jebel Ali, Dammam and Jubail to its ocean shuttle service out of Jeddah.

The company posted a net profit of EUR3bn ($3.28bn) for 2023, down from EUR17bn a year earlier, and cut its dividend to EUR9.25 per share from EUR63.

German shipowners’ group VDR on Tuesday said the diversions away from the Suez canal cost operators $1m per tour.

Global fleet growth is expected to be between 7 and 10% this year after a rise by 8% already last year, Hapag-Lloyd data showed.

Earnings before interest and taxes (EBIT) in 2024 will likely be between minus EUR1bn to EUR1bn, after EUR2.5bn in 2023, Hapag-Lloyd forecasts.

Its shares, with a small free float so vulnerable to bigger swings, were down 3.7 per cent at 129.4 euros at 1425 GMT.

Read: Tesla to Qatar Energy: How companies are responding to Red Sea tensions