By Dominic Chopping

Hapag-Lloyd lifted the bottom end of its full-year guidance range as the current situation in the Red Sea has tightened industry capacity, helping stabilize freight rates.

The container-shipping industry entered 2024 in deep overcapacity as cargo volumes failed to keep up with a glut of new vessels, sending freight rates tumbling from their pandemic-fueled highs. Shippers had begun to slash costs and adjust their networks as falling demand and the excess newbuilds prompted gloomy forecasts.

But hostilities in the Middle East have provided an unexpected boost and potentially changed the fortunes of the industry this year. Vessels are diverting by thousands of miles to avoid the Red Sea, keeping them busy for longer and forcing shippers to deploy any available excess capacity elsewhere, creating a sudden tightness in vessel capacity.

Together with better-than-expected volumes, this has prompted a recent jump in freight rates.

The company now expects earnings before interest, tax, depreciation and amortization of between 2 billion euros and 3 billion euros ($2.2 billion and $3.3 billion) in 2024, from between EUR1 billion and EUR3 billion previously. Earnings before interest and tax are now forecast at zero to EUR1 billion, compared with a previous target range of a EUR1 billion loss to EUR1 billion profit.

It reported Ebitda of EUR4.46 billion and EBIT of EUR2.53 billion in 2023.

Hapag-Lloyd said the Shanghai Containerized Freight Index, which tracks spot freight rate trends on Shanghai's most important trade routes, was quoted at $1,994 per TEU--a 20-foot container--at the end of March 2024 from $863 at the same time last year.

At the same time, global container volumes rose 12% on year through January and February, with most major trades recording significant growth, it said. Transport volumes in the Far East to North America trade rose by 25% and from the Far East to Europe by 12%.

Overall transport volumes in Hapag-Lloyd's main shipping unit increased by 6.8% in the first quarter, and although costs rose significantly due to longer sailings around the Cape of Good Hope, these were largely offset by cost management, it said.

The German shipping company posted forecast-beating earnings in the quarter, despite being sharply lower than last year when freight rates were higher. It reported net profit of EUR294.7 million from EUR1.89 billion in the same period last year, as revenue dropped 24% to EUR4.26 billion.

A FactSet poll had forecast net profit of EUR76 million on revenue of EUR4.04 billion.

"Even though our results are significantly below the exceptionally strong figures from the previous year owing to the normalization of supply chains, we are pleased to have got the new year off to a good start," said Chief Executive Rolf Habben Jansen. "Going forward, we must keep a close eye on our costs."

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(END) Dow Jones Newswires

05-15-24 0324ET