Container transport revenues at the Danish shipping conglomerate fell 20 percent year-over-year for the quarter due to a 26 percent decline in average freight rates.
The A.P. Møller – Mærsk shipping conglomerate, parent of Maersk Line and APM Terminals, among many other businesses, reported an underlying profit of $214 million for the first quarter of 2016, less than a sixth of the $1.3 billion the company earned in the same period last year.
Revenues were also down sharply at $8.54 billion for the first of 2016, compared with $10.55 billion in the first quarter of 2016. The Danish company reports its results in U.S. dollars.
“While market
conditions remain challenging, we continue to adjust our cost base to
the new conditions and maintain a good operational performance across
our businesses,” Nils Smedegaard Andersen, chief executive officer, said of the results. “We maintain our focus on strengthening the Group’s
position in the market and have completed acquisitions within APM
Terminals and Maersk Oil, and in Maersk Line we have defended our market
leading position.”
Maersk Line
Ocean carrier subsidiary Maersk Line posted a profit before financial terms — earnings before interest and taxes (EBIT) — of $16 million in the first quarter compared with $736 million the prior year. Revenues fell about 20 percent to $4.97 billion in the first quarter of this year at the world’s largest container shipping company, down from $6.25 billion in the first quarter of 2015.
Maersk said average freight rates fell 26 percent to $1,857 per 40-foot equivalent unit (FEU) in the first quarter of 2016 from $2,493 per FEU in 40-foot container a year earlier. That was partially offset by a 7 percent increase in volumes to 2,361,000 FEUs.
“The freight rate decline was attributable to lower bunker prices and deteriorating market conditions,” the company said. “Container freight rates declined across all trades, especially Maersk Line’s key trades to/from Europe as well as Latin America and North America.”
Maersk, which has been a leader in building large ships to take advantage of the economies of scale they enable, said its EBIT margin — the ratio of earnings before interest and taxes to net revenue — is about 5 percent better than its peers, on par with its ambitions. Andersen noted that other carriers have also built large ships, but Maersk has benefited from heavy investment in fuel-saving technology.
However, Maersk also noted that because it operates a more fuel efficient network, it benefits less from bunker price declines.
In addition, the company said a large part of its business is moving freight to and from Europe, which was “more impacted by the freight rate decline than other trades.” Andersen said the company’s business on services to West Africa and Latin America have been affected by the impact of lower oil prices on the economies of countries in those regions.
Maersk said global container demand grew about 1 percent in the first quarter of 2016 compared to the same quarter last year and that in the same period, global supply of ships grew 7 percent.
“The low demand growth was primarily related to a slowdown in emerging economies, due to low commodity prices and structural economic challenges,” the company said. “Europe also remained subdued during the quarter and a weaker Chinese import further affected global trade.”
At the end of the first quarter, about 7 percent of the global container fleet of 20 million TEUs was idle, according to Maersk. The world fleet saw 41 ships with 273,000 TEUs capacity added while 38 ships with 138,000 TEUs capacity were scrapped. During the first quarter, carriers placed orders for 12 ships with capacity of 122,000 TEUs, meaning that the orderbook now consists of about 19 percent of the current global fleet.
“The industry has recently seen steps towards consolidation from both mergers and acquisition. Over time this represents a potential ease of the supply situation through more disciplined capacity management,” said Maersk.
Maersk said the size of its fleet — 287 owned and 318 chartered ships — increased 2.2 percent between the first quarter of 2015 and first quarter of 2016. It had about four ships with 34,000 TEUs of capacity in layup at the end of the quarter.
“Managing capacity in line with the low container demand growth in the industry remains a focus area, and the closure of four services in 2015 resulted in an improved fleet utilization compared to both Q1 2015 and Q4 2015,” said Maersk.
The company said that during the past year, unit cost improved by 16 percent to $2,060 per FEU from $2,449 USD per FEU. Bunker cost fell 48 percent to and its bunker efficiency improved by 1.8 percent.
Asked about how mergers or new alliances might affect the container shipping industry, Andersen said, “We basically feel that consolidation in the market is good and we also feel it is positive when viable, stable alliances are formed because that enables everybody to concentrate on the offering to the customer and not fight exclusively on rates.”
On ocean carrier alliances, he said uncertainty surrounding the carriers that are not part of his company’s 2M vessel sharing agreement with MSC or the proposed new OCEAN Alliance “adds to the volatility in the market.”
The carriers that were formerly part of the Ocean3 (CMA CGM, China Shipping and UASC), G6 (APL, Hapag-Lloyd, Hyundai, MOL, NYK and OOCL) or CKYHE (COSCO, “K” Line, Yang Ming, Hanjin and Evergreen) alliances and are not included in the proposed OCEAN Allliance “will have to find out for themselves what they want to do — either they will have to consolidate in an alliance and give the best possible offer to the customers or they will have to concentrate on very few long-haul routes or local regional activity.”
“But that is all up to them and I think everybody will have some thoughts on consolidation, at least having discussions right now, but the small or midsize companies will need to consider their strategy very radically, in my opinion if they are not in an alliance that has a future,” he added.
The proposed OCEAN Alliance, which would start operating next April, would encompass CMA CGM, which is in the process of buying APL parent Neptune Orient Lines, the recently merged COSCO and China Shipping, OOCL and Evergreen Line.
The websites of news outlets Shippingwatch and Splash 24/7 reported today that the information service Alphaliner is suggesting the remaining eight carriers that are not part of 2M or the proposed OCEAN Alliance may form a new alliance. Hapag-Lloyd said last week it is in discussions with UASC about a possible merger or other form of cooperation.
APM Terminals
APM Terminals, Maersk’s port terminal operator arm, saw profits tumble 43.2 percent, from $190 million in the first quarter of 2015 to $108 million in the first quarter of 2016. Revenues fell to $962 million in the first quarter of this year compared with $1.14 billion in the same 2015 period.
“In general, weak demand, especially in Europe, slowing growth in China, and the low oil price continued to impact APM Terminals negatively,” said Maersk. “Being largely dependent on raw material exports, many economies in Latin America and West Africa where APM Terminals has significant activities, continue to see declining growth and foreign trade. Decreased volumes on the westbound Asia-Europe trade lane impacted terminals in both China and Europe.”
APMT said globally, the container handling market grew by 1.4 percent in the first quarter with some regions such as North America, Middle East, and South Asia showing moderate growth of 3-4 percent. On the other hand, markets declined in Northern Europe and West Africa, putting pressure on the company’s volumes.
APMT handled 8.7 million TEUs in the first quarter of 2016, 5 percent less than in the first quarter of 2015. The company attributed the decrease was mainly to divestments of terminal facilities in Charleston, Jacksonville and Houston in the U.S., as well as Gioia Tauro in Italy last year. Those divestments were only partially offset by its acquisition of Grup Marítim TCB last year.
APM Terminals noted volumes at its West Africa terminal declined about 8 percent when compared to same period last year, mainly because of an economic slowdown in both Nigeria and Angola.
On the other hand, its business in North America grew 9 percent in the first quarter of 2016 when compared to the first quarter of 2015. That favorable comparison came in part because its massive Pier 400 complex in the Port of Los Angeles was heavily impacted in the first quarter of 2015 by labor disruption during the contract negotiations between the International Longshore and Warehouse Union and Pacific Maritime Association.
Damco
The forwarding and logistics segment of the Maersk Group, Damco, reported a profit of $2 million in the first quarter of 2016 compared with a loss of $9 million the prior year even though revenues fell 13 percent year-over-year to $596 million.
“The result was mainly driven by cost saving initiatives and growth in supply chain management activities,” the company said.
