2115
Views

Hapag Lloyd Warns of Bunker Costs' Impact

alt
File image

Published Jun 29, 2018 5:59 PM by The Maritime Executive

Container carrier Hapag-Lloyd has cut its profit outlook for the year, a sign that the ocean carriers are having difficulty passing high bunker costs on to their customers. It had previously indicated that earnings would rise, and it now forecasts profitability comparable to FY2017.

The reason for the revision is "an unexpectedly significant and continuing increase in the operational costs since the beginning of the year, especially with regard to fuel related costs and charter rates combined with a slower than expected recovery of freight rates," Hapag said in a note to its investors. "These developments cannot be fully offset by cost saving measures that have already been initiated."

Hapag Lloyd's shares fell 10 percent by the end of trading Friday. Maersk's stock fell by five percent, reflecting investors' concerns about the sector as a whole. 

Maersk and other carriers have indicated that they will pass bunker expenses on to customers as a fuel surcharge - a move that shippers tend to resist. Earlier this month, the European Shippers' Council alleged that the emergency bunker surcharges are tantamount to anti-competitive price signalling, the kind that carriers promised to halt in a settlement in 2016. In a letter to the European Commission, ESC head Nik Delmeire argued that the carriers should abide by existing contractual terms and rates, and asserted that higher oil prices are not a legitimate "emergency" worthy of a surcharge. Further, he suggested, there is a question of fairness. "No negative surcharge was applied when the barrel of oil went down to $40 some time ago," he wrote.