Maersk Line’s profits rise through cost control, but Damco’s fall

There has been a ripple of surprise within and beyond the shipping industry that Maersk Line has made a profit over the past quarter. A.P. Moller-Maersk’s core container shipping business saw revenue fall from US$7,322m in Q2 2012 to $6,651m in Q2 2013 yet operational profit leapt more than 70% year-on-year to $467m.

Profits increased despite container volumes remaining flat and the average freight rate falling by almost $400 per forty foot equivalent unit to $2,618. The key was the combination of lower bunker fuel prices and an improved efficiency leading to an 18% lower use of fuel. This was combined with improved network efficiency, leading to a 12.7% fall in total cost per ‘forty foot equivalent unit’.

Whilst the network efficiency and the scale of improvement in fuel efficiency is impressive, it should not come as too much of a surprise as the purpose of the new E-class vessels was to improve efficiency, not least in the consumption of fuel per container.

In contrast to Maersk Line, the group’s freight forwarding business Damco had a disappointing quarter with net revenue falling slightly to $758m, but EBIT (Earnings Before Interest and Tax) falling by around 80% to $4m due to investment costs. Underlying volumes were not that bad with a recent acquisition in air freight forwarding delivering a 14% increase in tonnage year-on-year, whilst ‘contract logistics’ related business grew by 10%. However, the core sea freight business saw volumes fall by around 1%.

The company said that it “does not anticipate a major improvement in the market situation” but would start seeing the benefits of its investment programme “from later this year and expect to see solid year-on-year improvements in the results from Q4 2013 onwards”.

Overall, A.P. Moller-Maersk Group saw profit before tax fall by 28% to $10,080m on revenue that fell by 9%, a result depressed by lower profits at the Group’s oil business.  APM Terminals saw profits edge-up despite flat volumes.