The Danish shipping conglomerate saw its earnings drop over 82 percent from the previous year thanks to what it called a “perfect storm” of falling container freight rates and low oil prices.
Maersk Group, the Danish shipping conglomerate that includes Maersk Line and APM Terminals, Maersk Oil and several other businesses, reported a profit of $925 million in 2015, less than a fifth of the $5.2 billion it earned in 2014.
Revenues plunged to $40.3 billion in 2015 compared with $47.6 billion in 2014, as the company faced what it termed a “perfect storm” in its biggest business segments — container shipping and oil and gas.
Given its expectation that oil prices will remain at a low level for a long period, the company impaired the value of Maersk Oil’s assets by $2.6 billion after tax.
In its annual report, the company noted “demand for transportation of goods was significantly lower than expected, especially in the emerging markets as well as the Group’s key Europe trades, where the impact was further accelerated by de-stocking of the high inventory levels. At the same time, the container transportation industry experienced a significant increase in new tonnage ordered two to four years ago on the back of higher economic growth expectations and a focus on larger and more fuel-efficient vessels.”
“The combination of low demand and high supply increase led to sharp freight rate declines in the second half of 2015,” it said.
Maersk said its oil related businesses “were similarly impacted by the increasing oil supply-demand gap combined with a significant increase in oil supply from especially US shale and OPEC production. This resulted in a continued oil price decline in the second half of 2015, leading to significant layoffs and reduction of activities across the global oil industry.”
The company said it has reacted to this downturn by trimming it businesses “through accelerating and initiating further cost reduction initiatives across all our businesses, cancelling sailings and laying up vessels in our shipping businesses, reducing our oil exploration activities as well as reviewing, postponing and cancelling investments across our businesses.”
Last November, Maersk Line said it would eliminate 4,000 jobs, or about 17 percent of its 23,000 land-based employees.
Chief Executive Officer Nils S. Andersen noted that despite the downturn, all Maersk businesses delivered a profit in 2015 and the company had slightly reduced interest bearing debt.
With reasonable debt and strong cash flow the company is
ready to use its strong financial position “if the right things come
up…at the right price,” said Anderson, noting the company took a cautious approach to
mergers and acquisitions last year.
“The strength of the group is intact and our ambitions to take advantage of this downturn is also intact,” he said. “Don’t forget that’s the way that companies operating in cyclical businesses do make money.”
During the first part of 2015, the implementation of the 2M Vessel
Sharing Agreement (VSA) with Mediterranean Shipping Company (MSC) on the carriers east-west service networks was completed successfully with the phase-in of 193
vessels.
Maersk Line
Maersk’s container shipping subsidiary Maersk Line saw its revenues drop to $23.7 billion in 2015 from $27.4 billion in 2014. Maersk said the “underlying profit” for the liner business, which it defines as the “result of continuing business excluding net impact from divestments and impairments,” stood at $1.3 billion in 2015 compared with $2.2 billion in 2014. The company said it expects an underlying result this year that will be significantly lower because of depressed freight rates.
In the fourth quarter of 2015, Maersk Line posted an underlying loss of $165 million compared with a profit of $631 million in the fourth quarter of 2014 as freight rates continued to plunge. Revenues in the fourth quarter of 2015 amounted to $5.2 billion compared with $6.9 billion in the same 2014 period.
Andersen noted that container rates, as measured by the China
Containerized Freight Index, continued to fall in the fourth quarter, ending the year down about 150 points to a reading of 700.
Maersk said cargo volumes in the fourth quarter of 2015 was about the same as in the fourth quarter of 2014 at 2.4 million FEUs. Freight rates, however, hit an all-time low of $1,941 per FEU in the fourth quarter of 2015 compared with $2,401 per FEU in the fourth quarter of 2014.
On a more positive note, Maersk Line did see bunker prices fall to $244 per ton compared with $512 per ton a year earlier.
The company noted that rates declined across all trades, and Maersk Line’s key European and Latin American trades were hit especially hard by the negative impact of falling rates.
In the coming year, Andersen said there was room for growth in the container trades to and from the U.S., Europe, and India, but weakness in developing markets such as Brazil and West Africa as well as Russia could drag down growth.
During 2015, Maersk Line’s fleet capacity increased about 0.5 percent, but dropped 2.1 percent in the latest quarter. The company has been reducing its reliance on chartered ships and relying more on owned vessels as its “Triple E” class ships have been delivered. The company currently has 27 ships on order with total capacity of 367,000 TEUs.
Maersk Line said it closed four services and cancelled 110 sailings in 2015 in response to weak demand, with 50 of the skipped voyages coming in the fourth quarter.
Andersen estimated about seven percent of the world fleet is idled at present. He said the capacity situation in the market appears to be improving, but the outlook is unclear because of the high variation in demand before and after Chinese New Year.
Maersk Line says it continues to reduce costs, with unit cost per FEU — including income from vessel sharing agreements — falling to an average of $2,288 per FEU in 2015, compared with $2,584 per FEU in 2014. The company lowered reduced average bunker consumption per FEU to .931 tons in 2015, down 48 percent since 2007.
APM Terminals
Port terminal arm APM Terminals reported an underlying profit of $626 million in 2015 compared with $849 million in 2014 on revenues that fell to $4.2 billion from $4.5 billion the year before.
APMT terminals posted a combined throughput of 36 million TEUs for the year compared with 38.3 million in 2014. Maersk said it expects a similar underlying result from APMT in 2016.
The terminal company said the 5.9 percent throughput decline was mainly due to divestments and less import volumes into West Africa, Russia and Brazil. On a “like for like” basis, it said throughput declined by just 0.5 percent.
APM Terminals noted it had secured new terminal projects in Qingdao, China; Vado, Italy; Cartagena, Colombia; and Tema, Ghana, which should result in future growth. It also expects to get approval for its acquisition of the Spanish container terminal operator Grup TCB in the first quarter. TCB has terminals not only in Spain, but also in Colombia, Brazil, Mexico, Guatamala, and Turkey.
APM Shipping Services
APM Shipping Services, which includes Maersk Tankers, the forwarder and logistics company DAMCO, and several other businesses reported an underlying profit of $446 million in 2015 compared with a loss of $230 million in 2014.
DAMCO posted a profit of $1 million in the fourth quarter of 2015 compared with a loss of $145 million in the fourth quarter of 2014. The improvement at DAMCO was attributed primarily to “Productivity improvements, overhead cost reductions and growth in supply chain management activities were.”
