Venezuelan downturn squeezes Seaboard’s profit margins
Seaboard Marine’s operating income has declined for a second year in a row, reaching $5.8 million last year as compared to $16.6 million in 2002, as the unstable political and economic situation of Venezuela continued to affect the carrier’s South American operations.
“Operating income was significantly lower in 2003 because of continuing economic disruption in Venezuela,” said H.H. Bresky, chairman, president and chief executive officer of Seaboard Corp., the parent company of Seaboard Marine. “In addition, higher fuel and charter hire costs affected earnings.”
The carrier’s average operating profit margin declined to 1.4 percent of revenue in 2003 from 4.3 percent in 2002.
Seaboard Marine experienced a decrease in average cargo rates and “a significant decline” in volumes in the Venezuelan and related markets, the company said.
However, Seaboard Marine increased its operating income in the fourth quarter of 2003 compared to 2002, a change that prompted the company to say that this may be “potentially indicating better future operating results.”
Seaboard warned, though, that the duration and extent of reduced shipping demand attributed to the economic contraction in Venezuela “will continue to affect future results while shipping demand for affected South American routes remains depressed.” Seaboard said its management cannot predict to what extent economic conditions will improve for the Venezuelan and related markets.
Seaboard Marine’s net sales rose 7 percent in 2003 to $409 million from $383.4 million in 2002. The company said it has sought to replace lost Venezuelan revenue by adding new routes and expanding volumes on existing routes, although margins have decreased.
“We are encouraged by the growth of the business outside of Venezuela and are seeking opportunities to lessen the impact of the continued disruptions on our business,” Bresky said. Seaboard Marine reached record sales of more than $400 million in 2003 “because of increased shipping volumes in both new and existing markets,” the company added.
Seaboard admitted that for the past couple of years, Seaboard Marine has experienced the negative effects of the political instability in Venezuela, previously Seaboard’s largest foreign destination. This also affected other related South American markets.
Commercial activity in Venezuela has not yet recovered from the general strike that began in December 2002 and ended in February 2003, Seaboard reported.