Hapag-Lloyd Loss Widens on CSAV Takeover Cost, Low Freight Rates

By Nicholas Brautlecht

May 13 (Bloomberg) — Hapag-Lloyd AG, Germany’s biggest container line, said its first-quarter loss widened as the takeover of Chilean rival Cia. Sud Americana de Vapores SA drove up cost and freight rates remained under pressure.

The adjusted loss before interest and tax was 63.2 million euros ($87 million), compared with 53.2 million euros a year earlier, the Hamburg-based company said in a statement today. The average freight rate dropped 8 percent to $1,422 per standard container, or TEU, as the industry continues to suffer from overcapacity after the delivery of vessels coincided with a trade slump triggered by the global financial crisis.

Hapag-Lloyd last month agreed to buy most of CSAV’s assets in an all-share transaction to become the world’s fourth-largest container liner with about $12 billion in sales. The companies forecast annual savings of about $300 million through the combination, as they try to close the gap on the industry’s leaders, including A.P. Moeller-Maersk A/S.

While average fuel cost dropped 5 percent to $595 a metric ton in the quarter, “this still represents a very high overall level that cannot be compensated for” by “freight rates, which are far too low,” said Chief Executive Officer Michael Behrendt, who retires at the end of June.

The company has a target to increase freight rates this year, and this largely depends on whether it can push through price increases in the third quarter, the peak season ahead of Christmas, Behrendt said.

The first-quarter net loss grew to 119.1 million euros from 93.6 million euros a year earlier. Transport volume gained 5.5 percent to 1.4 million TEU, while revenue fell 6 percent to 1.55 billion euros as freight rates weakened and the dollar, the industry’s main currency, declined.

German tour operator TUI AG holds a 22 percent stake in Hapag-Lloyd.