Container line’s loss deflates Maersk group profit in Q3

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lica_maerskA.P. Moller-Maersk delivered a profit of US$438 million in the third quarter, down from $778 million in the same period last year, negatively impacted by lower container freight rates and low oil prices.

“The Maersk Group delivered an underlying profit of USD 426m in the third quarter of 2016. The result is unsatisfactory, but driven by low prices,” said Maersk group CEO Soren Skou.

The underlying group profit for the third quarter was significantly lower than for same period last year, predominantly driven by a loss in Maersk Line and with lower underlying results in APM Shipping Services and APM Terminals, said an official company release.

Skou noted that Maersk Line for the second quarter in a row has reported a loss due to continued low freight rates, down 16% year-over-year. Freight rates were, however, up 5.5% quarter-on-quarter for the first time since the third quarter of 2014.

Group revenue decreased by $933 million, or 9.2%, in the third quarter compared to Q3 2015, predominantly related to Maersk Line, which saw a decrease of $659 million due to lower average container freight rates; Maersk Oil with a decrease of $95 million due to 8.0% lower oil prices; and decreased rates in Damco and Maersk Tankers.

This was partly offset by higher container volumes in Maersk Line and in APM Terminals.

Maersk Line’s volume growth buckled against sustained pressure on container freight rates, leading to a decline in average freight rates and an underlying loss of $122 million.

The container liner’s revenue of $5.4 billion was 11% lower than for Q3 2015, driven by a 16% decline in average freight rates to $1,811 per 40-foot equivalent unit (FFE)  against $2,163 per FFE year-over-year, partially offset by an 11% increase in volumes to 2.7 million FFE against 2.4 million FFE.

A significant part of the growth was due to more backhaul cargo at lower rates than headhaul. With an increase in fleet capacity of 3.8%, the increase in volumes represented an improvement of network utilization, said the company. The freight rate decline was mainly attributable to decreasing bunker prices of 25%, but was also impacted by the increased backhaul volumes and continued weak market conditions.

Looking ahead, the group still expects a result for 2016 that is significantly below last year’s $3.1 billion and anticipates an underlying result below $1.0 billion.

Maersk Line still anticipates an underlying result significantly below last year’s $1.3 billion and expects a negative underlying result for 2016. It foresees global demand for seaborne container transportation to increase by around 2% in line with previous expectation of 1% to 3%.

On September 22 the Maersk group announced an operational restructuring designed to generate growth, increase agilities, and unlock synergies amid challenging economic conditions.

It will reorganize itself into two separate divisions: Transport & Logistics and Energy. The first consists of Maersk Line, APM Terminals, Damco, Svitzer, and Maersk Container Industry. The second division consists of Maersk Oil, Maersk Drilling, Maersk Supply Service, and Maersk Tankers.

The Transport & Logistics division will focus on generating growth and synergies based on a one-company structure with multiple brands operating in a more integrated manner. The estimated synergies are expected to generate up to two percentage points ROIC improvement over a period of three years. No material synergies are expected in 2016, said the conglomerate.

Meantime, the oil and oil-related businesses within the Energy division is looking to pursue separate or individual activities including forming joint ventures, mergers, or listings, with the objective of finding opportunities and solutions within 24 months.

Photo: lotsemann