Jakob Stausholm, chief financial officer at Maersk Line, said the Danish ocean carrier’s gains in market share, utilization, and lower unit costs have been overshadowed by very low freight rates.
The price war in container shipping may be winding down, according to Maersk Line.
Speaking to investors during A.P. Moller – Maersk’s Capital Markets Day in Copenhagen on Tuesday, Vincent Clerc, the chief commercial officer for Maersk Line, said, “The industry took a little bit of time but you can see that things are starting to self-correct.”
In regards to the last three years, Clerc noted how after a couple years of very stable supply and demand growth, the company saw a gap open at the end of 2014 between supply that started to phase in at a faster pace and demand that began to slow down, which resulted in devastating effects on container freight prices.
In 2015, despite a drop in short-term freight rates, Maersk actually managed to secure long-term contracts at fairly decent rates, with very little impact from the start of the price war, Clerc said.
Looking ahead to this year, contract rates also fell, “giving a new impetus to the price war that was being fought towards the beginning of 2016,” he said.
During the first nine months of this year, Clerc said about 45 percent of the cargo that Maersk carried was under long-term contracts of more than three months, while 20 percent was under contracts with terms of one to three months and 36 percent was in the spot market, with terms of less than one month.
“It’s been a tough year and we are not satisfied with the situation,” Maersk Line Chief Financial Officer Jakob Stausholm said. Although the transport and logistics business earned a lot of money in the first three quarters of 2015, almost all of it evaporated in 2016, he said.
This was most pronounced at Maersk Line and APM Terminals (APMT).
Maersk Line had a net operating profit after taxes (NOPAT) of $1.49 billion in the first nine months of 2015, but a NOPAT of negative $230 million in the first nine months of this year. APMT’s NOPAT totaled $526 million in the first nine months of 2015, but only reached $351 million in the first nine months of this year.
Stausholm said, “We actually feel that we have operated Maersk Line well in 2016: we have won market share, we have better utilization than ever, we have lower unit costs. But it is all overshadowed by very low freight rates.”
Clerc said there are some hopeful signs, noting that at the end of 2014, “there were 22 strings sailing between Asia and the north continent of Europe where the price war really started and the overcapacity was most acute. Today, as the alliances reshuffle, there will be only 16 strings left. That is a significant adjustment in the capacity that we offer.
“Of course some of the strings are bigger because we have phased in a lot of larger tonnage but still the industry has shown its ability over time to self-correct,” he added. “But as it self-corrected, some of the ships that got phased out of Europe started to appear in other trades where there was still balance between supply and demand and creating new impetus also to the price wars in other trades. In the course of 2016, things have started to self-correct and we’re starting a narrowing gap between supply and demand.”
Clerc also said the current rate war is the third in the past eight years.
“What really took us aback in this was that on the back of a few years of ‘truce’ in between two price wars – where the average of the industry made basically no money – the violence with which the price wars started again was quite shocking,” he said.
The sudden fall in oil prices caused some lines to feel they had money to spend to try to gain market share.
The current price war has been going on for about five quarters, and looking back at previous price wars, this is about the time they have taken to resort themselves, Clerc said.
“Some of the fundamentals seem to point toward a correction on the freight rates or at least a correction on the supply and demand,” he said, noting how there will be record idling of ships with capacity of 1.5 million TEUs this week and record scrapping.
APMT CEO Morten Engelstoft said 2016 has also been a tough year.
“Our revenue has taken a hit due to the weak global volumes and due to our margins being under pressure in the current market that we are facing,” Engelstoft said. However, in the last couple quarters, APMT has seen revenues pick up, partly due to its acquisition of TCB Group, he said.
“Had we not added new terminals to the portfolio, our volume would have been flat in 2016 compared to 2015 in a market that is increasing one or two percent,” he said.
APMT’s revenues have been impacted by a decline in volumes in oil dependent countries such as Angola, Nigeria and Russia.
“Our volumes and our results are under pressure and we are then taking a number of steps to mitigate it,” he said.
APMT is currently seeking to win more business from both Maersk Line and other shipping line customers and is in the process of developing eight new terminals.
He said the company’s terminal in Izmir, Turkey had its first vessel call the port two weeks ago, and that a ship made a trial call at its terminal in Lazaro Cardenas, Mexico over the weekend, while two to three more of its terminals will go into operation next year.
Maersk says price war may be winding down
