Maersk underlying Q1 loss ‘unsatisfactory’

Despite a revenue boost from the Hamburg Süd purchase, “margins in the ocean segment were significantly impacted by higher unit costs,” says CEO Skou.

Maersk underlying Q1 loss ‘unsatisfactory’

Despite a revenue boost from the Hamburg Süd purchase, “margins in the ocean segment were significantly impacted by higher unit costs,” says CEO Skou.

Maersk underlying Q1 loss ‘unsatisfactory’

Despite a revenue boost from the Hamburg Süd purchase, “margins in the ocean segment were significantly impacted by higher unit costs,” says CEO Skou.

 
A.P. Møller – Mærsk said its revenue in the first quarter of 2018 was $9.3 billion, 30 percent more than the $7.1 billion it reported in the same period last year. Revenue was up just 10 percent, if revenue of Hamburg Süd, which Maersk acquired last year, was eliminated for the purpose of comparison.
    Comparison with the first quarter of 2017 was complicated not only by the acquisition of Hamburg Süd but by A.P. Moller-Maersk’s decision to sell its oil, tankers, drilling and supply services businesses and focus on becoming an “integrated global container transport and logistics business” instead of being a conglomerate.
    Maersk said its underlying loss for the first quarter of 2018 was $239 million, compared with an underlying loss of $179 million in the first quarter of 2017.
    “That is not a result we can in any way be satisfied with,” said Søren Skou, the chief executive officer of A.P. Moller – Maersk.
    Maersk said it still expects an underlying profit for the year that will be more than the $356 million in 2017. But it added there were “increased uncertainties due to geopolitical risks, trade tensions and other factors impacting freight rates, bunker prices and rate of exchange.”
   The company said it had a profit in the first quarter this year of $2.76 billion, driven by the sale of Maersk Oil to the French oil company Total in March. Skou noted the company now owns 97.5 million shares of Total with a market value of about $6.2 billion and plans to return a material portion of the value of those shares to Maersk shareholders in the form of an extraordinary dividend, share buy-back or distribution of the Total shares to Maersk shareholders this year or in 2019.
    The $2.76 billion profit in the first quarter of this year was due to profit from discontinued operations of $2.98 billion offset by a loss of $220 million from continuing operations. In the first quarter of 2017, it had a profit of $253 million with a profit of $377 million from discontinued operations and a loss of $124 million from continuing operations.
    Earnings before interest, taxes, depreciation and amortization improved 5 percent to $669 million in the first quarter of this year compared to $638 million in the first quarter of 2017. The higher EBITDA was “positively impacted by Hamburg Süd with $88 million and strong performance in terminals and towage, however negatively impacted by around $100 million related to rate of exchange.”
    Skou explained in the company’s ocean business, most of its revenue is in U.S. dollars, but a large portion of its costs is in local currencies.
    “In the first quarter of 2018, we reported a 30 percent revenue growth and the integration of the business is well under way with a successful start to the Hamburg Süd integration and the closing of the Maersk Oil transaction in March with an accounting gain of $2.6 billion,” said Skou. “At the same time, on the short-term performance, our result especially in the ocean- related part of the business was unsatisfactory. In response to the current challenging market conditions we are implementing a number of short-term initiatives to improve profitability and we reiterate our guidance for 2018.
   “We saw quite some headwinds from the rate of exchange during the quarter. The real negative story this quarter is that our margins in the ocean segment were significantly impacted by higher unit costs — partly by adverse developments in fuel price and exchange rates but also partly due to our own cost management,” he said.
    Maersk has begun reporting its financial results using a new format that breaks its revenues and earnings into four segments: ocean; logistics and services; terminals and towage; manufacturing and other activities.
    “We are starting to see the contours of the company we will become when we are fully focused on container shipping, ports and logistics,” said Skou. He said the company is beginning to see the benefits of integration and collaboration among its remaining businesses.
    The company’s ocean segment had revenue of $6.8 billion in the first quarter of 2018, a 38 percent increase over 2017. That was driven by the acquisition of Hamburg Süd, which resulted in a boost in volume by 24 percent to 3.2 million 40-foot-equivalent units (FEUs). Without the acquisition of the German carrier, revenue would have been up 9 percent and volume up 2.2 percent, which Vincent Clerc, the chief commercial officer, said was in line with company plans to grow more slowly than the overall market as it integrates the two companies. He said the overall market is growing at a rate of about 3 percent to 4 percent.
    The average freight rate reported by the ocean segment in the first quarter of 2018 was $1,832 per 40-foot-equivalent unit, an increase of $119 per FEU or 7 percent. Clerc said this was in part due to contracts being reset at higher levels but also because of higher rates in Hamburg-Süd’s business. He said $55 of the $119-per-FEU increase was due to Hamburg Süd. But he also noted Hamburg-Süd’s costs were higher.
   Clerc said it has been difficult to pass on all fuel cost increases in contracts and in the spot market in areas where there has been an increase in capacity. He said the company also has benefited from higher demurrage and detention collections and sales of slots to competing carriers outside of Maersk’s network.
    Skou said the company will benefit from synergies between Hamburg Süd and the other Maersk businesses, with more arriving in the second half of this year as it extracts Hamburg Süd from vessel-sharing agreements in which it has been involved in the past.
    The company has committed to capital expenditures going forward of $3.2 billion, including some that are for 2024 or beyond related to terminal concessions. But the company is planning to reduce capital spending to average less than $500 million per year until 2023. Skou said the company has no plans to place additional ship orders for at least a year.
    Skou has made digitization of Maersk’s businesses a high priority and said that effort is progressing. The company pointed out that 60 percent of bookings and 84 percent of quotes are handled online; $1.3 million worth of business is conducted every hour on the company’s web site my.maerskline.com
    Skou said that digitization is one of the ways that Maersk can continue to reduce its costs of doing business. He said he also believe there are gains to be made by Maersk from optimizing the design of its network and to filling its network.
   He said the company believes the supply-demand dynamics and freight rates will improve over the rest of the year, if there are not major trade wars or geopolitical shocks.
    Maersk said its unit cost in the ocean segment increased 12 percent or $214 to $2,072 per FEU. Higher fuel prices, adverse exchange rates and a change in mix of business because of the acquisition of Hamburg Süd all contributed to the increase in cost.
    Søren Toft, executive vice president, addressed some of the ways that the company hopes to reduce cost. These include reducing capacity on trade lanes that are not yielding desired results, reducing feeder ships and channeling more cargo to direct ports, pushing harder on fuel efficiency and reducing procurement costs. The company will look at more slow steaming if bunker prices continue to increase.
    Clerc said the company’s logistics and service revenue in the first quarter of 2018 was $1.46 billion, up 6 percent when compared to the same period last year, and that the company benefited from growth in its supply chain management and inland haulage business. EBITDA in the segment was $23 million in the first quarter of 2018 versus $32 million in the first quarter of 2017.
    The company’s terminals and towage revenue totaled $911 million in the first quarter this year, up 11 percent from the same period in 2017. EBITDA in the segment was $196 million in the first quarter this year, up 41 percent from the first quarter of 2017.
   Terminal volumes in the first quarter of this year were 9.3 higher than in the same period last year and up 6.9 percent on a like-for-like basis, better than the estimated global throughput increase for the terminal industry of 4.6 percent estimated by Drewry. Tug jobs that Maersk’s towboat company Svitzer handled were up 7 percent, both from organic growth and entering new ports.
    Maersk Container Industries (MCI), which manufactures containers, said it had revenue of $288 million in the first quarter this year compared with $243 million in the same 2017 period. The 18 percent growth was due to both higher volumes and increased sales of reefer containers. About 30 percent of the containers MCI made went to external customers, and the company said that share is expected to grow due to lower demand from Maersk Line and Hamburg Sud.
    Clerc noted that average freight rates on north-south trade lanes were $2,018 per FEU in the first quarter of this year, while on the east-west trade lanes they were $1,796 per FEU, a $222 difference.
    A year ago, the average difference was at a low point, only $30, and carriers were in a price war. With oil prices rising, he said the economies of some developing countries have improved, and demand for transport has increased. He said the difference in north-south and east-west rates could return to the $300 level seen before the price war.
    Clerc said, however, that not all north-south trades are rosy. He said that in the trade lane between the Far East into the west coast of Latin America and the Caribbean, there is oversupply of capacity and “a pretty big price war ongoing.”





U.S. containerized imports continue to be robust with retailers and other businesses trying to beat potential tariff increases in March. The problem is that warehouses and storage facilities are running out of space.
Drewry ’ s World Container Index, a composite of container freight rates on eight major routes to and from the U.S., Europe and Asia, was up 1.1 percent to $1,682.67 per 40-foot container as of Feb. 14.
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Maersk underlying Q1 loss ‘unsatisfactory’

Despite a revenue boost from the Hamburg Süd purchase, “margins in the ocean segment were significantly impacted by higher unit costs,” says CEO Skou.

By Chris Dupin on May 17, 2018AmericanShipper.com

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Maersk underlying Q1 loss ‘unsatisfactory’

Despite a revenue boost from the Hamburg Süd purchase, “margins in the ocean segment were significantly impacted by higher unit costs,” says CEO Skou.

By Chris Dupin on May 17, 2018AmericanShipper.com