Maersk hit by oil related write-downs but logistics businesses see more moderate falls

Maersk, Ruscon and Transcontainer have joined forces in launching an intermodal container service between the seaport of Novorossiysk and Vorsino dry port outside Moscow.

Alongside many headlines announcing the losses Maersk has suffered over the past year, the CEO, Nils Andersen, has described the company as facing a “perfect storm”. Yet the container shipping business may have seen profits fall but it is not losing money and some of Maersk’s other logistics businesses are seeing improvements in performance.

The big hit that Maersk has taken has been the write-downs for its deep-sea oil-field assets to the value of US$2.6bn combined with further assumptions about the value of its entre oil assets. Of course these are dependent on the oil price and therefore are an expression of accounting conservatism. Nonetheless, the prospects for Maersk have taken a severe dent over the past year.

At the Group level revenue fell 15% to US$40bn whilst Earnings Before Interest and Tax (EBIT) was down 70% at US$1.8bn. After the write-downs, the largest fall was caused by Maersk Lines where revenue fell by 13% to US$23.7bn whilst reported profit was US$1,303m, down from US$2,341m.

Unsurprisingly, the problem here is miserable freight rates combined with minimal growth in demand. The former has hit record lows whilst the latter was 0.5% over 2015, but the yield per container was helped enormously by the 42.8% fall in bunker fuel costs leading to a 11.5% decline in cost per forty-foot container.

As Nils Andersen commented, it is the ability to drive-down costs and sustain better margins than the competition that will enable Maersk to exploit the opportunities presented by the recession in the sector. The strategy of controlling cost also extends to the mix of vessels in Maersk’s fleet which is becoming gradually more reliant on larger, owned vessels with fleet growth coming to a standstill.

For the other logistics businesses in the Group, APM Terminals was hit by lower volumes passing through ports in emerging markets resulting in a fall of 5% in revenue but reported profits down 27% to US$654m. The Maersk Shipping Services saw some surprising results with Maersk Tankers seeing a rise in profits to US$160m whilst the oil and gas logistics business ‘Maersk Supply Services’ saw a profit of US$147m, which was down from last year’s US$201m but still impressive bearing in-mind the state of the oil and gas sector.

Damco has also broken into profit with a positive result of US$19m as compared to last year’s US$293m loss. This has been achieved by rationalisation of customer accounts and a widening of margins on air and ocean business.

Maersk Group does have problems with its corporate strategy in that a mix of oil and shipping business is not as attractive as it may once have been. However, in the teeth of a near-slump in container shipping the company is responding reasonably well, something that suggests that its relative competitive position in the sector may be getting stronger.

 

Source: Transport Intelligence, 11th February 2016

Author: Thomas Cullen

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