Michael Kastl, Managing Director, Treasury, Finance and Investor Relations at Hapag-Lloyd joined the container shipping giant in 1996 but in all his 25-years in the industry, he’s never seen today’s abundance of cash.
Prior to the pandemic, Hapag-Lloyd had a typical liquidity reserve of US$1-2bn, topped up when needed with fresh funds drawn from financing assets or raising money in the capital markets.
After the pandemic – and before the company paid bumper dividends of US$12bn earlier this year – treasury had around US$20bn sitting on the balance sheet. Such largesse has turned Kastl from liability manager to asset manager, switching his treasury focus to areas like counterparty risk and the best places to assign liquidity.
That means low risk MMFs, investing in overnight repo transactions and a new allocation to a special investment fund outsourced to external asset managers that doesn’t sit on the group’s balance sheet as cash or cash equivalent, he tells Treasury Today in an interview from the group’s Hamburg headquarters.
“With interest rates at current levels, if you have US$9bn sitting on your balance sheet you can earn a lot of interest,” he says. “We currently have a net cash position of US$3.9bn, something I’ve never seen before.”
Elsewhere Hapag-Lloyd has used its cash pile to invest in new terminals in North and South America and India via an acquisition of SM SAAM’s terminal business and related logistics services, and a 40% participation in Indian terminal operator J M Baxi Ports & Logistics, respectively. The company is also pouring money into the energy transition. It’s begun taking delivery of 12 new dual-fuel vessels, using long-term green financing and paying the equity portion off in cash, and is spending money on refitting ships to increase carbon efficiencies. Shipping groups often run ships at speed to secure access to terminal slots – only once a ship has arrived at a terminal does it have a commitment to berth. Owning terminals helps solve the problem, allowing the company to run ships slower and better manage the imbalance between supply and demand, explains Kastl.
Hapag-Lloyd will use LNG as well as biofuels to run its ships until the market in green fuels becomes easier to read. Although green hydrogen and ammonia has potential, the legislation around ammonia is unclear, and Kastl is convinced bio and e-methane will most likely become a key driver of the transition. “This is the way to net zero,” he says. Only now access to biofuels remains complicated by its scarcity, particularly as other sectors like trucking and airlines jostle for share of the renewables market.
The industry regulator the International Maritime Organisation (IMO) has set new emission reduction targets, although they still need to be enshrined into individual country policy. Elsewhere, under the EU’s emissions trading framework, shipping groups will have to buy respective emission allowances for each tonne of carbon emitted in European waters from next year. “We are reflecting this into our price calculations and how to pass onto our customers,” says Kastl.
Hapag-Lloyd has also launched a green shipping product that offers its customers the ability to ship their goods on a carbon neutral basis, explains Kastl. “Biofuels are available in limited quantities at the moment, but we are very active on purchasing them to be able to offer our customers less carbon emitting transportation.”
Kastl concludes by reflecting on his treasury priorities ahead in the notoriously cyclical business. Since 2020, when the new IMO regulation said ships could only use low sulphur fuels, the company adjusted its pricing mechanism in its contracts from bunker adjustment clauses to a more holistic marine fuel recovery formula. It means the company’s risk from ups and downs in fuel pricing can be passed on to customers. “Our hedging activity on fuel prices is now less than what we hedge in FX or on the interest rate movements in our debt positions.”
