Dive Brief:

• Hapag-Lloyd executives said 2019 is off to a "decent" start on an earnings call with investors Thursday. Global transport volume grew slightly (0.5%) year-over-year for the carrier in the first quarter.
• The fast-chilling relationship between the U.S. and China did not come up on the call, but IMO 2020 preparations still loom large. Bunker price was up 14% year-over-year in the first quarter, and the carrier expects another slight increase before the end of the year.
• So far in 2019, rates have largely been higher than the same period in 2018. Average freight rate was up 4.9% year-over-year for the quarter. But as of May, rate growth dropped to zero and the carrier is waiting to see what the summer will bring. "At this time of the year we always have uncertainty around, when will rates start picking up?" said CEO Rolf Habben Jansen, who added he expects a jump in rates in the next four to six weeks and average freight rate to increase slightly by the end of the year.

Dive Insight:

Despite continued uncertainty regarding the two largest players in global trade, Habben Jansen described a market where the next nine months or so will be fairly smooth.

Ocean carriers are in the midst of efforts to prepare for IMO 2020 regulations to go into effect in January, retrofitting ships for new fuels and installing scrubbers to bring exhaust into compliance without changing the fuel source. Apart from trade machinations, this effort has been the major source of anxiety for industry stakeholders for the last year or so.

Hapag-Lloyd will install 10 scrubbers, most by the end of the year, and retrofit one ship to run on liquefied natural gas (LNG) early in 2020 as a pilot. Habben Jansen expects the extra cost related to the conversions will be $80 to $100 per TEU, much of which will be passed on to shippers.

The higher rates brought on by tighter capacity and fees associated with IMO 2020 preparations can't be good news for shippers. Habben Jansen called previous lower rates, specifically on transpacific routes, "impossible to continue."

Years of overcapacity have kept rates relatively low and after a period of consolidation, the CEO was confident there would be no drastic downward swings in rates going forward. "We certainly don’t see anything falling off a cliff," the CEO said. Habben Jansen also told Reuters he doesn't expect any major consolidation in the industry in the next year or two.