Fuel for the container shipping profit explosion

The shipping company Hapag Lloyd is increasing its dividend tenfold this year and distributing 6.2 billion euros to shareholders. The major shareholders, the city of Hamburg and the logistics group Kühne + Nagel, are profiting from the boom in the transport industry and exploding freight rates. by Dirk Mewis

In view of the bubbling profits in container shipping,Hamburg shipping line Hapag-Lloydincreases its dividend tenfold. For the 2021 financial year, shareholders are to receive 35 euros per share, compared to 3.50 euros in the previous year. The total payout of each dividend combined is stated at 6.2 (previous year: 0.6) billion euros.

The shipping company closed 2021 with a profit of 9.4 billion euros based on preliminary figures. The year before, the figure was 1.3 billion euros. The main fuel for the profit explosion in 2021 is the enormous increase in freight rates for transports by sea, which, in view of tight capacities and disrupted supply chains, will send the profits of all container shipping companies through the roof this year.

One beneficiary of Hapag Lloyd’s success is the city of Hamburg. This is because the Hanseatic City is Hapag-Lloyd’s third-largest shareholder. Through the municipal holding company HGV (Hamburger Gesellschaft für Vermögens- und Beteiligungsmanagement), it currently holds a 13.9 per cent stake in the shipping company. This means that a share of around 860 million euros of Hapag-Lloyd’s total dividends is likely to go to the city. A further 30 per cent of the shares are held by the Chilean shipping company CSAV and Kühne Holding AG, each of which will now receive a dividend of around two billion euros.

Extreme demand for container freight

In recent years, the world’s largest container shipping companies have often barely earned their cost of capital, but profits have been bubbling up since 2020. In 2021, the industry could bring in an estimated 150 billion US dollars in profits. Then the demand for consumer electronics, sporting goods or furniture has increased immensely in the pandemic. German furniture imports, for example, were at times over 20 percent of pre-crisis levels – despite supply bottlenecks. Many of these products are produced in China and transported by container. This has led to extreme demand for container freight, but supply has not been able to come close to keeping up, driving freight rates up explosively. “The magnitude of the profits did not surprise me in principle. However, overall they were already above my expectations,” explains Vincent Stamer, economist and trade expert at the Kiel Institute for the World Economy (IFW).

“We continuously monitor spot freight rates. On the sea route from China to Europe, these rates have increased more than sevenfold in the past two years. This enormous jump has filled the shipping companies’ coffers, so the profit increases are not such a big surprise, especially since the shipping companies’ quarterly figures last year already indicated this,” says Stamer. And although freight forwarders and importers suffered from the high freight rates, the shipping companies had put significantly more container ships into service last year than they scrapped and sent inactive ships back out to sea. At the same time, freight rates from China to Europe per container had recently been more than 14,000 US dollars, but in the opposite direction less than 1000 US dollars.

Calming of freight rates delayed

The normalisation process in freight rates is likely to slow down as a result of the omicron variant, Stamer believes. Because “according to my calculations, eleven percent of the transported goods are currently still stuck on unmoved container ships waiting outside ports to be able to unload their cargo. That is only slightly less than the peak value in summer 2021”. This is due to the enormous increase in cargo, but also to a lack of port infrastructure or hinterland transport. And ships waiting in traffic jams would not be available and would reduce the supply of containers. In addition, these traffic jams would not dissipate so quickly.

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