Hamburg Süd 2013: Doing well under difficult business conditions

Hamburg (ots) - Overview of Hamburg Süd growth

Growth in the global economy and containerised transportation by
sea in 2013 was slightly below the level of the previous year. Once
again, available global slot capacity outpaced container transport
volume as deliveries continue to exceed the level of scrappage, which
also increased. As a consequence of the continuing overcapacity,
freight rates in most trades remained under pressure or declined
still further. The only positive support came from fuel prices, which
have fallen slightly from the highest level of the previous year.

Due to subdued market growth and operational problems in the
vastly overstretched ports in Brazil, Hamburg Süd and its Brazilian
subsidiary Aliança were only able to increase transport volume in
liner services by 1 per cent year-on-year to around 3.3 million TEU
(1 TEU = 20 foot standard container). With freight rates falling
slightly and devaluation of the most important earnings currency (US
dollar) by around 4 per cent as against the euro, total revenues of
the business field shipping fell by 3.9 per cent to E5.3 billion.

In 2013, worldwide bulk shipping was still marked by substantial
overcapacity and transport volumes - particularly to China - falling
below expectations, even if there was an apparent improvement towards
the end of the year. Overall, Hamburg Süd's bulk business and product
tanker business failed to generate positive results last year. Liner
services were slightly better than the previous year, and also
performed well by industry comparison.

The number of staff employed by the shipping Group was almost the
same as last year at 4,491 employees (previous year: 4,512), of which
686 were at sea. Including those seafarers employed by third- party
companies (but excluding trainees), the number of staff employed by
Hamburg Süd and its subsidiaries was 5,159.

Despite the unsatisfactory business environment, investments
totalling E450 million were considerably above the level of the
previous year (E247 million). These investments mainly comprise
instalments and final payments for twelve 9,000/9,600 TEU ships and
four smaller 3,800 TEU newbuilds.

Business environment

Trust in the European markets was only partially restored in 2013.
Continuing high levels of debt in some states contributed towards
subdued growth in the eurozone. After the end of the budget crisis in
the USA, there was a slight improvement in economic growth and
positive developments on the employment markets. The Chinese economy
expanded again by around 7.7 per cent, thereby meeting expectations.
In contrast, growth in Brazil remained unsatisfactory. Weak economic
development, rising interest rates and inflation, and serious
infrastructure challenges were a cause for concern. Overall, global
economic growth of around 3.0 per cent was somewhat weaker than in
the previous year.

Whilst worldwide container transport increased by 3.7 per cent in
2013, global slot capacity increased by about 6 per cent (1.0 million
TEU) to 17.3 million TEU. Scrappage reached record levels of around
500,000 TEU in 2013 (over 200 ships), but net capacity continued to
grow due to the high volume of newbuild deliveries during the year.
Orders also increased again, with new orders in the financial year
2013 for 234 ships with a total capacity of 1.83 million TEU and a
total value of USD 16.8 billion, or 1.34 million TEU more than in the
previous year. At the end of December 2013, the order book again
stood at more than 20 per cent of the worldwide operative fleet
capacity. In the segment for 9,000 TEU ships alone, the order volume
increased from around 50 to around 150 ships over the course of just
a few months.

Due to substantial overcapacity, charter rates for most ship
classes remain under pressure. Average rates for Panamax ships (4,400
TEU gearless) in 2013 of USD 8,700/day were only slightly above the
historical low in the summer of 2009, and barely covered operating
costs, let alone interest costs and capital repayments. Numerous
German shipowning companies became insolvent during the reporting
year. Banks offering ship finance still need to make substantial
write-downs to their loans.

The overcapacity means that there is no scope for the restoration
of freight rates that is so urgently required for liner services
worldwide. Increases were only possible for individual services for a
limited time. The freight rate recovery for refrigerated goods during
the first half-year did not last. Over the course of 2013, rates for
most services fell back to a level that is wholly insufficient in
light of the high level of investment, operating costs for reefer
containers, and on-board equipment.

Fuel prices reached an annual high of USD 646 per tonne during the
first quarter 2013. Over the further course of the financial year,
the average price for heavy diesel fell to just below USD 600, with
an annual average price decline of around 7 per cent.

The business environment for bulk shipping is heavily determined
by Chinese coal and ore imports for steel production. In 2013, the
People's Republic imported 801 million tonnes of iron ore and 214
million tonnes of coal. Year-on-year growth was 10.7 per cent and
19.6 per cent respectively. Global bulk transport increased by around
5.5 per cent. At the same time, newbuild deliveries of bulk carriers
capacity of around 62 million tdw were considerably lower than in the
previous two years (each around 100 million tdw), despite
consistently high levels of scrappage of old tonnage. At the same
time, there was only a minimal improvement in bulker charter rates
during the course of the year. The same applies to product tankers,
which failed even to cover operating costs.

Hamburg Süd ships and containers

As at 31 December 2013, the Hamburg Süd fleet comprised a total of
154 ships, 45 of which were owned by the Group. Of these, 103 ships
were employed in liner services, and 51 chartered-in ships were
employed in tramp operations (bulkers, product tankers). During the
course of the reporting year, the fleet of owned ships was expanded
by the first four newbuilds of a total of six ships in the Cap San
series. With a capacity of 9,600 TEU, these are the largest-ever
ships in the Hamburg Süd Group. They have 2,100 reefer slots on
board, and are therefore the world's largest reefer capacity vessels.
The new ships were introduced into the services between Asia or
Europe and the East coast of South America. The Hamburg Süd
subsidiary Aliança also introduced four 3,800 TEU ships in the
Brazilian cabotage service. These wide-beam newbuilds set new
standards for cost efficiency on the South American East coast. Three
older Panamax ships of the Bahia series (3,800 TEU) were sold at the
end of 2013, and another three at the start of 2014. The available
slot capacity in liner services increased by around 6 per cent to
approximately 457,000 TEU, and the average ship capacity by 7 per
cent to 4,437 TEU.

Hamburg Süd Group is continuing its strategy to further improve
the efficiency of its fleet. The increasing average capacity of its
vessels is the basis for a constant reduction in cost per slot.

At the end of 2013, the order-book for Group-owned ships to be
delivered in 2014/2015 was around 78,000 TEU. The total number of
containers remained virtually unchanged year-on-year at around
458,000, thus reflecting the moderate growth in cargo volume.

Liner services

Against a background of a strong recovery in freight rates in the
worldwide transportation of refrigerated goods, liner services had a
much better start than in the previous year. Due to unsatisfactory
volume growth and overcapacity in the Asian services, earnings were
under considerable pressure during the rest of the year. The growth
in carryings was weaker than expected; strikes in Chile at the
beginning of the year, overloaded infrastructure in Brazilian ports,
and political and economic problems in Venezuela and in Mediterranean
countries had a negative impact on cargo operations. The service
between Europe and India/Pakistan - which suffered a rather dramatic
fall in rates from time to time - was particularly disappointing.
Owing to unsatisfactory seasonal business on the Asia routes, many
services already adjusted their capacity from the beginning of
December in anticipation of falling volumes in the off- season. Some
individual routes or whole services are not being offered for several
months, and ships are being laid up in order to reduce system costs
and to offset at least some of the earnings shortfalls.

Relief came in the form of a slight fall in bunker prices, the
successful implementation of service rationalisations, and measures
to reduce bunker use.

Overall, Hamburg Süd was able to post a slight year-on-year
improvement in results from liner services, although due to rate
pressure in the Asia-South America services, the still unsatisfactory
development of activities in the Mediterranean and the service
between Europe and India/Pakistan, none of our targets with respect
to overall earnings have been met.

Tramp shipping

Neither bulk carriers nor product tankers generated positive
earnings in 2013. Their results were at the same level as last year.

Outlook 2014

Economic conditions should improve in 2014. According to the
International Monetary Fund (IMF), the global economy should grow by
3.7 per cent, and world trade by 4.5 per cent, with the US economy in
particular set to become more dynamic. In the eurozone, all signs
point to some countries coming out of recession, even if high public
deficits continue to be a cause of concern in many countries. Despite
positive impulses from the soccer world championships, there is no
sign of a sustained solution to Brazil's economic issues. Growth in
the Chinese economy will also be of decisive importance over the
coming year.

Even if the overall positive outlook as regards the growth of the
world economy and trade should turn out to be correct, we do not yet
expect a sustained recovery of container liner services over the next
year. This is mainly due to continuing increases in overcapacity.
Although many liner shipowners and the German shipowning companies
that are so traditionally prevalent in the container segment mostly
remain highly indebted, the number of orders for new ships is rising
again. Indirect government support from the large shipbuilding
countries Korea and China, and private equity - mainly from the USA -
are shoring up ship financing despite the failure of the German
KG-company system. The trend towards ever larger and more
fuel-efficient ships continues. At the same time, older ships are not
being scrapped at a sufficiently comparable rate. The recent
revelation of a delay of at least a year in the expansion of the
Panama Canal - the expanded canal is not expected to open now until
2016 - will mean that older Panamax vessels will remain in service
longer, whilst the newbuilds ready to step into service cannot yet be
utilised as originally planned.

It remains to be seen if the intended pooling of operations of the
world's three leading players Maersk, MSC and CMA CGM on the major
East-West routes will be successful in the long run, or if it will
provoke similar joint ventures or even mergers.

Hamburg Süd will expand its activities in the core services to and
from South America and add to its network where it makes sense. Based
on a high owned share of modern ships and containers, the focus of
corporate management in 2014 will remain a continual improvement of
all cost positions.

This year should see increases in revenues and charter rates in
bulk shipping due to uninterrupted global growth in volume of 5-6 per
cent per year and a decrease in newbuild deliveries. The tramp
business of the Group operated by Rudolf A. Oetker, Furness Withy and
Aliança Bulk is expected to increase results in 2014, though not to
an acceptable level. The same applies to product tanker operations.

Overall, we anticipate that the shipping Group's operating result
for 2014 will be at about the same level as last year.

The high level of investment to renew the Group's IT equipment
continues, along with the projects to reduce the environmental impact
of our ship operations and improve the sustainability of our business
activities. We are preparing our fleet for the introduction of the
increased requirements under MARPOL IV as regards reduction of
emissions. This includes the use of low-sulphur fuels in coastal
waters, and equipping our ships that operate on the US West coast
with facilities to receive shore-side electricity. Initially, the
additional operational cost of Hamburg Süd will increase by at least
USD 40 million per year. Due to the strong pressure on earnings and
the overall less than satisfactory results, we will be forced to pass
on these additional costs to shippers as surcharges.

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For further information please contact:
Hamburg Süd | Corporate Communications | Eva Graumann
Willy-Brandt-Straße 59-61 | 20457 Hamburg | Phone: +49 40 3705-2627 |
Fax +49 40 3705-2649 eva.graumann@hamburgsud.com |
http://www.hamburgsud.com