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ZIM Q2 net profit shoots up 394%
ZIM Integrated Shipping Services Ltd. was modest in its earning statement, calling a second-quarter 394% net profit rocket simply “significant improvement.”
This week ZIM reported second-quarter net profit of $25.3 million compared to $5.1 million in the same period last year.
ZIM President and CEO Eli Glickman used the same exact words, “significant improvement,” in May, when he reported the Israeli shipping line had whittled its first-quarter net loss year-over-year from $24.3 million to $11.9 million.
ZIM’s Q2 results were up “significantly” nearly across the board:
• Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for Q2 2020 was $145.1 million, up 53.7% from $94.4 million in Q2 2019.
• Adjusted earnings before interest and taxes (EBIT) was $72.7 million, a jump of 87.9% year-over-year from $38.7 million.
• Operating cash flow was $119.8 million, a year-over-year leap of 86.9% from $64.1 million.
Total Q2 revenues were down 4.7% year-over-year, from $834.3 million last year to $795.1 million. Total volume also was down 12.3% to 641,000 twenty-foot equivalent units from 731,000 TEUs in Q1 2019.
“I’m very pleased to report a significant improvement in ZIM’s performance compared to the same period in 2019,” Glickman said in the earnings statement. “In Q2 2020 we have delivered our best results in a decade, which we believe stem from our overall strategy. Combined with our vision and values, and the unique abilities of our people, it yielded these great and encouraging results.”
ZIM also reported digging out of the hole in the first six months of the year:
• Adjusted net profit for the first six months of 2020 was $26.9 million, up from an adjusted net loss of $14.5 million last year.
• Net profit was $13.4 million compared to a net loss of $19.2 million in the first six months of 2019.
Adjusted EBITDA also made impressive gains, from $170 million in 2019 to $242.3 million in the first six months of this year.
As with the first quarter, first-half revenues and volumes were down. Revenue was down only slightly, though, 0.7% from $1.63 billion to $1.61 billion. First-half volume in 2020 was down 8.5% from 1.39 million TEUs to 1.28 million.
Glickman said it was “important to note that this accomplishment has been achieved while we were facing the ongoing formidable challenges posed by the global pandemic.”
ZIM said the COVID-19 pandemic has “significantly impacted global economies, resulting in reduced demand and spending across many sectors, adversely affecting the volume of trade.”
Glickman said ZIM was able to combat the adverse effects with innovative services. “Our agile response and strong initiatives were very well received by shippers. We also continued to broaden our array of digital tools, improving the way we do business with our customers.
“Our constant efforts to become the most customer-oriented company in the industry gained the trust of our customers and business partners and proves to be a winning strategy for the benefit of all,” he said.
Maersk profits validate the new container-shipping formula
The good news is that container shipping looks like it will weather the coronavirus crisis. The even better news is that COVID-19 has accelerated and solidified a new, more resilient business formula for the industry.
On Wednesday, the owner of the world’s largest container line, A.P. Moller-Maersk (APM, Copenhagen: MAERSK-B), posted stronger-than-expected results for the second quarter — the very quarter the coronavirus was peaking.
Maersk’s experiences during the outbreak confirm that liner alliances and consolidation are paying off, allowing capacity to be much more actively managed to match demand, supporting rates. The crisis has also confirmed the value of digital spot-booking platforms.
“Since it has worked so well for us [during the outbreak] why should we change that?” said APM CEO Soren Skou during the conference call, referring to active capacity management. “That will be our approach going forward. In my view, this is a structural change.”
Digital spot booking platforms will likewise be the new normal. “A version of a [digital] spot product will be ‘table stakes’ in two to three years.” Skou maintained.
The winning formula for container shipping that has emerged: consolidate capacity; toggle capacity in line with demand; go for profits not market share; split exposure between spot and period contracts; push spot customers toward digital booking platforms; and use spot booking data to more accurately toggle capacity in line with demand to further enhance earnings.
Strong quarterly results
APM reported net income of $443 million for the second quarter of 2020, almost triple net income of $153 million in Q2 2019. Earnings before interest, tax, depreciation and amortization (EBITDA) totaled $1.7 billion in Q2 2020, 8% above the consensus estimate of $1.58 billion. Projected full-year EBITDA is $6 billion-$7 billion, topping the consensus estimate of $5.8 billion.
In the ocean segment, Q2 2020 revenue was $6.57 billion, down 8.7% year-on-year due to a 15.8% volume decline offset by a 4.5% freight rate increase. Costs fell faster than revenues — down 16% to $5.16 billion due to lower bunker and time-charter costs. Consequently, Maersk’s Q2 2020 ocean EBITDA increased 26%, to $1.36 billion.
Three months ago, Maersk predicted second-quarter demand could fall by 20-25%. As it turned out, demand was down 20% in April, but by a lesser amount thereafter. Demand is down this month by the mid to high single digits, reported Skou.
Maersk “blanked” (canceled) more than 166 sailings in Q2 2020. “Tight capacity deployment led to a decrease in capacity that was slightly more than the decline in actual volume, as we expected the decline in volumes to be steeper,” acknowledged APM CFO Patrick Jany.
Carriers have added that capacity back. Skou said that as of now, Maersk has more capacity deployed in the trans-Pacific market than it did at this time last year.
Yang Ming’s Q2 strong but not strong enough
Despite second-quarter miss of only $2.25 million, first-half net loss totals nearly $29.5 million
Yang Ming Marine Transport Corp. reported Friday it had shaved its loss from more than $27 million in the first quarter to $2.25 million in the second.
Still, that means the Taiwanese carrier had a net loss for the first half of the year of nearly $29.5 million. During the first six months of 2020, consolidated revenue was down 12% compared to the same period in 2019, to $2.2 billion. Volume was down 9.86% to 2.38 million twenty-foot equivalent units (TEUs). And the first-half net figure included a loss in the dry bulk business of $30.53 million.
But Yang Ming said there were bright spots during the second quarter.
“Benefiting from strong freight rates and relatively low fuel costs, Yang Ming reported an improving quarterly result in its container transport business, generating positive operating profit of $18.64 million in the second quarter despite the business volumes [being] down 15% due to the COVID-19 outbreak,” it said.
But as with the first half, the dry bulk business brought down second-quarter results.
“In spite of the significant progress in [the] container transport sector, the spread of the pandemic had negatively impacted the dry bulk market, resulting in quarterly losses of $20.94 million for Yang Ming’s dry bulk business, primarily attributable to the recognition of impairment loss on dry bulk chartered-in vessels under [international financial reporting standards],” it said.
Yang Ming indicated in the six-paragraph earnings release that it believes the future is bright.
“Looking forward, [as] Western countries begin to lift social distancing measures and manufacturing productions resume operation, the trans-Pacific freight rates have surged to the highest level in two decades. The rates on Asia-Europe routes have also shown an improvement compared to the same period last year,” Yang Ming said.
Yang Ming said it also is taking steps to “efficiently control its operating costs, such as optimizing container flows to minimize container repositioning costs, feeder/inland transport and fuel consumption reduction, anticipating better performance in [the] container transport sector in the third quarter.”
It said it is accelerating its fleet optimization plan with the addition of 14 11,000-TEU chartered vessels and 10 2,800-TEU owned newbuilds. Yang Ming said these new, efficient vessels will reduce fuel costs while enhancing the company’s long-term competitiveness.
“In terms of dry bulk business strategies, Yang Ming will redeliver chartered tonnage, including three vessels by the second quarter of 2021 and the remaining four long-term chartered vessels during 2022 to 2025,” it said. “Furthermore, with charter rates on the rise and the Baltic Dry Index posting gains, the recovering market will significantly improve [the] dry bulk business’ performance after the third quarter.”
Hapag-Lloyd profit swells despite shrinking volumes
Outlook for strong full-year performance intact despite economic uncertainties
Hapag-Lloyd maintains that despite doused volumes in the second quarter, it has the liquidity and strong earnings to stay well above water.
“After the year got off to a decent start, transport volumes significantly declined in the second quarter as a result of the COVID-19 pandemic. We benefited from the sudden drop in bunker prices, adjusted capacity to lower demand and took additional cost-cutting measures as part of our performance safeguarding program,” CEO Rolf Habben Jansen said in Hapag-Lloyd’s earnings release Friday. “On the whole, we have a good first half year behind us despite the coronavirus crisis.”
Hapag-Lloyd reported earnings before interest, taxes, depreciation and amortization (EBITDA) for the first half of 2020 of $1.29 billion, up from $1.08 billion during the same period in 2019. The EBITDA margin improved year-over-year from 15.3% to 18.4%.
Earnings before interest and taxes (EBIT) was $563 million, up from $440 million reported in the first six months of 2019. The EBIT margin improved year-over-year from 6.2% to 8%.
Group profit jumped year-over-year to $314 million from $165 million, and Hapag-Lloyd said its free cash flow “was once again very positive” at $1.2 billion.
The liquidity reserve, which totaled about $1.9 billion at the end of June, “was significantly increased in the first half of the year as active measures were taken to further strengthen the liquidity position as part of the performance safeguarding program,” the company said.
Revenue was down slightly, less than 1% from the prior-year level, coming in at approximately $7 billion. Hapag-Lloyd attributed the decline to a transport volume decrease for the combined first and second quarters of about 4% to roughly 5.75 million twenty-foot equivalent units (TEUs).
The world’s fifth-largest container carrier, Germany-headquartered Hapag-Lloyd has a fleet of 239 container ships and a capacity of about 2.6 million TEUs.
“While transport volumes were still slightly increased in the first quarter, the second quarter saw a decline of roughly 11% compared to the prior-year period as a result of the pandemic,” Hapag-Lloyd said.
Hapag-Lloyd said the freight rate during the first half of the year “slightly improved” to an average of $1,104 per TEU from $1,071 in 2019.
Transportation expenses were down about 4% from the first six months of 2019.
“An average bunker price of $448 per tonne, which is approximately 4% higher than it was in the prior-year period owing to the introduction of the IMO 2020 fuel regulation, was offset by positive effects from a volume-related decline in transport expenses and active cost management resulting from the [performance safeguarding program] measures. In addition, the sharply declining bunker prices in the second quarter had a positive impact on Hapag-Lloyd’s earnings,” it said.
In his analysis of the earnings report, Frode Morkedal, the managing director of equity research for Clarksons Platou Securities, said, “Part of the beat is lower costs, which are probably nonrecurring, such as transport expenses for pending voyages and bunker prices being around [$142 million] lower than expected.
“Some of these positive drivers will likely reverse in 3Q, as higher bunker prices add directly to transport expenses at the same time as bunker surcharges … come down,” Morkedal said. “That is probably partly why they have reiterated the full-year guidance despite the 2Q outperformance.”
Hapag-Lloyd indeed is standing by its full-year forecast of 2020 EBITDA of $2 billion to $2.6 billion and EBIT of $581 million to $1.1 billion.
“Given the COVID-19 pandemic and the economic repercussions it has had in many parts of the world, the forecast will remain subject to considerable uncertainty,” Hapag-Lloyd said in Friday’s release. “In addition to the development of transport volumes, the development of freight rates and a further potential increase in bunker prices in particular should have a significant impact on Hapag-Lloyd’s results in the second half of the 2020 financial year.”
Morkedal agreed with Hapag-Lloyd’s assessment. “The company does note that the full-year guidance is based on the premise of a gradual recovery of the global economy in the second half, which we think is reasonable despite a resurgence of COVID-19,” he said.
“Overall we are encouraged by the recent trend in the container ship market with freight rates held high despite liner companies taking back more ship capacity from the idle pool, an indication that trade is recovering,” Morkedal said.
Despite signs of an economic recovery, Hapag-Lloyd’s performance safeguarding program will remain in place.
“Thanks to the wide range of measures we have introduced in recent months, we are still on track,” Jansen said. “Our focus will remain on the safety and health of our employees, but naturally also on safeguarding the supply chains of our customers worldwide.
“We will continue to advance our performance safeguarding program and to implement our Strategy 2023. While doing so, we will keep a close eye on the future course of the COVID-19 pandemic and flexibly react to market changes,” he said. “On the whole, the pandemic is and will remain a major source of uncertainty for the entire logistics industry.”
Cost-cutting measures taken earlier this year are helping Hapag-Lloyd’s bottom line as well.
Jansen announced in early May that the company was slashing costs by a “middle-three-digit million-dollar number” in reaction to the economic harm caused by the COVID-19 pandemic.
Jansen said then that in addition to blank sailings, “we’re also restructuring services to mitigate costs and taking a whole variety of other measures as well. One of the ones that’s been most public is, for example, trying to avoid the Suez Canal in some cases.”
Hapag-Lloyd also this year launched a series of “quality promises,” including fast booking response, timely and correct bills of lading, and accurate invoicing. In July, it rolled out its “loaded as booked” promise.
HMM makes steep climb toward profitability
Korean container carrier reports huge gains in first half of 2020
Despite a global economy walloped by the coronavirus pandemic, HMM on Wednesday reported an incredible 90% net profit improvement in the first half of the year.
Even with the steep climb, HMM’s net profit remained in the hole at negative 37.5 billion Korean won (minus $31 million) for the first six months of 2020. Still, that number was a drastic move from the trench of negative 379.2 billion won (minus $314 million) reported for the first half of 2019. In other words, that climb took HMM up 341.7 billion won ($288.7 million).
HMM did get out of the hole in operating profit, reporting a “turnaround” to a positive in Korean currency of 136.7 billion won (U.S. $113 million) for the first half of 2020 compared to negative 218.5 billion won (minus $181 million) in the same period last year. That turnaround amounted to an eye-popping 355.2 billion won ($300.1 million).
It achieved these profit leaps despite a volume drop of nearly 21%, from 2,248,000 twenty-foot equivalent units handled in the first six months of 2019 to 1,779,000 TEUs this year.
Revenue also was down, albeit less than 1%, from 2.71 trillion won ($2.24 billion) in the first half of 2019 to 2.68 trillion won ($2.22 billion) this year.
Huge jumps in profit
South Korea’s largest container carrier said this week it also had turned a corner with quarterly results, achieving a net profit in the second quarter of 28.1 billion won ($23 million) — a 228.8 billion won ($193.3 million) year-over-year improvement from negative 200.7 billion won (minus $166 million) in 2019.
The gain in Q2 operating profit was equally impressive, up to a positive 138.7 billion won ($115 million) from minus 112.9 billion won (negative $94 million) in the same period last year — a 251.6 billion won ($212.6 million) gain.
As in the first half, Q2 revenue was down slightly, 1.6%, from 1.39 trillion won ($1.15 billion) in 2019 to 1.37 trillion won ($1.13 billion) this year.
HMM also made gains after the height of the coronavirus passed in Asia in the first quarter of this year. Quarter-over-quarter revenue increased 4.7%, from 1.31 trillion won in Q1 2020 to the 1.37 trillion won in Q2.
But the huge jumps again came in profits, with the operating profit of 138.7 billion won in Q2 2020 up some 140 billion won from the negative 2 billion won (minus $1.69 million) reported just a quarter earlier. Net profit was equally impressive, from negative 65.6 billion won (minus $54 million) in Q1 to positive 28.1 billion won ($23 million) in Q2.
Huge container ships
HMM’s brief earnings release Wednesday attributed the major increases in part to cooperation with THE Alliance and the deployment of its 24,000-TEU-class container ships since April.
Formerly known as Hyundai Merchant Marine, HMM has a fleet of about 100 vessels and is a member of THE Alliance, the space-sharing agreement on major east-west container routes, with Hapag-Lloyd, Ocean Network Express and Yang Ming.
In its outlook this week, HMM said it would continue to “fully utilize its assets,” including the world’s largest container ships.
HMM announced last October it would issue a 660 billion won ($562.4 million) convertible bond and use the funds for ship and equipment investment and to improve the company’s financial structure.
It placed an order for 12 container ships each with a capacity of more than 20,000 TEUs. The first, the HMM Algeciras, became the world’s largest container ship when it made its maiden voyage in April.
The HMM Oslo and HMM Copenhagen were launched in June, followed by the HMM Dublin in June, HMM Gdansk, HMM Rotterdam and HMM Hamburg in July, and the HMM Southampton and HMM Helsinki in early August.
Still to come in August and September are the HMM Stockholm, HMM LeHavre and HMM St. Petersburg.
Little optimism
Despite celebration-worthy ship christenings and financial results, HMM remains cautious. In its forecast for the remainder of 2020, HMM said the “market outlook remains uncertain as coronavirus can reemerge for the upcoming winter season and growing geopolitical tensions between [the] U.S. and China are definitely one of the most important variables.”
HMM did say it expected freight rates on the trans-Pacific trade to remain strong over the short term, “driven by an increase in freight volumes as the U.S. started to resume economic activities.”
It noted, however, that the intra-Asia trade will be “challenging amid mounting competition between carriers and oversupply of capacity.”
HMM earlier this week announced it was going into business with a competitor with the sale to CMA CGM of a “50% stake minus one share” in the Total Terminal International (TTI) Algeciras container terminal in southern Spain.
TTI Algeciras is owned by HMM and HT Algeciras, a company it wholly controls. Despite the sale of shares, HMM will retain its position as the largest shareholder through HT Algeciras, making it partners with CMA CGM.
Terms of the deal, expected to close in the fourth quarter, were not disclosed, but HMM said in the announcement that it “expects a great synergy effect based on strategic cooperation with CMA CGM in terms of enhancing profitability and operational capabilities by securing
TTI Algeciras, which has a handling capacity of 1.6 million TEUs, formerly was operated by Hanjin Shipping. HMM acquired the 100% stake in 2017.
Source: Shipping Lines' Websites
