Maersk sees higher demand but profitability is still a problem in Q1

Maersk has announced the redesigning of its ocean network in West & Central Asia that connects countries including India, Bangladesh, Sri Lanka, Pakistan, UAE and Saudi Arabia to the world.

Market demand for container shipping and the oil price have both risen over the past quarter and this has resulted in more business for Maersk. Profits, however, did not follow suit.

In the Danish giant’s Transport and Logistics business, revenue showed an increase of just under 10% compared to Q1 2016 but operating profit fell sharply year-on-year from US$87m in Q1 2016 to US$14m in Q1 2017.

The core Maersk Line container shipping business saw volumes grow by 9%, driven by demand out of North America and “West Central Asia”. Freight rates also increased but the increase was uneven across the market. Where the demand/supply balance was strong, such as East-West trades, prices were up by 23.2%. On North-South routes, rates fell by 4.3%, but rates overall increased by 4.4%. The factor depressing returns was higher fuel costs, with spending on bunker fuel up by 95%. This led to a 10% fall in EBITDA year-on-year, to US$436m.

The other businesses in the Transport and Logistics segment also saw a difficult quarter with APM Terminals seeing profits down 16% year-on-year. Throughput was up 2.7% but “liner consolidation” resulted in a tougher pricing environment. Similarly, the freight forwarding business, Damco, suffered from higher volumes but lower rates. The Air and Ocean businesses increased by 10% and 11% respectively, but the shortage of capacity appears to have squeezed Damco, driving the company into an underlying loss of US$8m for the quarter.

Despite the complex market environment, Maersk generally struck a note of optimism for its Transport & Logistics business. Speaking to the press the company’s Chief Financial Officer, Jakob Stausholm, said that he could “definitely see better market conditions” at present and that these were likely to show up in the figures later in the year. The question is, to what extent will Maersk and the rest of the container sector be able to turn greater demand into higher profits.

Source: Transport Intelligence, May 11, 2017

Author: Thomas Cullen