Bolloré insulation against cyclicality sorely needed in another tough quarter for CMA CGM


Even with the acquisition of Bolloré Logistics in a long game to insulate itself against the cyclicality of the container shipping trade, profits at CMA CGM were down 30.3% y-o-y to US $2,390m in the first quarter. The acquisition was completed midway through the quarter but failed to insure against the difficult conditions in container shipping, and revenues were down 7.0% y-o-y to $11,834m.

Things could be a lot worse!

According to CMA CGM, the Red Sea situation turned out to be a benefit to freight spot rates. Due to so many larger vessels diverting via the Cape of Good Hope there has been an effective reduction in global capacity. Additionally, an uptick in consumer demand in the EU and US helped volumes grow 11.7% to 5.61m TEU but even so the division saw EBITDA down 35.8% y-o-y to $1,950m on revenues that fell 11.4% to $7,858m.

There is a core structural problem to global container shipping trade – overcapacity with new ships erroneously ordered during the pandemic only now coming into service. CMA CGM has been one of those. Even while suffering the consequences of softening consumer demand it is bringing new ships into service, with average revenue per TEU falling 20.7% y-o-y to $1,400 as a result. If the Red Sea situation is actually benefitting the company, things could be a lot worse if peace breaks out in the Middle East.

Logistics division fails to insulate against shipping woes

The Bolloré Logistics acquisition was completed on Feb 29, 66% of the way through the quarter. As such it failed to have much of an impact on revenues of the Logistics division let alone that of CMA CGM as a whole. Revenues were up 0.6% in the quarter to $3,887m and EBITA up a reasonable 6.9% to $361m.

Group Chairman and CEO Rudolph Saadé said, “The acquisition of Bolloré Logistics gives us the critical mass we need to withstand cyclical challenges”. This may well show in the current quarter, but failed to materialise in the last one.

It’s interesting that despite the strategic turn toward logistics as a business line being apparently so important to the company, its margins are less than half that of container shipping. Even with the downturn the shipping trade is experiencing, it had a 24.5% margin (down 9.4 points y-o-y) where Logistics is up slightly to 9.3%. As such, it provides a fairly thin blanket to insulate the Group at best.

Looking forward 

There’s no sign of peace breaking out in the Middle East and the Red Sea situation will carry on impacting global trade. Saadé continued, “CMA CGM will continue to meet its customers’ needs as effectively as possible”.

Even with US and European consumer demand recovering, there are unavoidable structural problems in the supply chain – growing overcapacity being the elephant in the room. It’s not clear what will happen with the sea cargo industry in the coming year, but the slow and steady logistics investments may well be one that keeps the ship on an even keel. 

Author: Richard Shrubb

Source: Ti Insights

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