Maersk still relies on container shipping efficiency in 2019

maersk

AP Moller-Maersk delivered workman-like half year results last week despite a difficult market as it strives to develop its non-container shipping businesses.

For the half year to June 2019, revenue was up 1.6% to $19.2bn but EBITDA (Earnings Before Interest Tax, Depreciation and Amortisation) leapt by 24% to $2.6bn, resulting in a margin of 13.5%. This represents a strong recovery as the underlying number in the first half of 2018 was negative.

These results emphasise that the core business of Maersk remains container shipping and this operation saw slightly surprising strength with revenue edging up just a couple of percent at $14.1bn but EBITDA jumping 25% higher at US$1.068bn. The combination of higher freight rates, lower bunker fuel costs and the integration of Hamburger Sud services into the Maersk network expanded profit margins. Container volume increases were hardly spectacular, with Q2 seeing year-on-year rises of just 1.4%, whilst over the same period freight climbed by a meagre 1.4% so the efficiency gains must have been substantial. Possibly this is an indicator of the future direction of Maersk Ocean, with tough market conditions balanced out by sustained falls in the non-fuel cost base.

In other parts of the Maersk business, ‘Logistics and Services’ was fairly muted with half year revenue essentially flat although profits perked up with a 15% rise over the half year to $112m. It looks like that the Damco ‘Supply Chain Management’ operation has been driving the business as the forwarding numbers on both air and sea appear weak. The inland business did not seem to have much impact although the intermodal operation was up. Maersk has continued to develop its landside business, with the latest addition being a venture with an Indian truck broker.

The ‘Terminals and Towage’ business experienced a solid first half of 2019, with revenue and profits edging up in single figure percentages, although things deteriorated in Q2 partly due to exceptional items. Underlying demand for Maersk’s ‘Gateway terminals’ was 6.4% in Q2 compared to an estimated market growth of 2.5%.

These results suggest that Maersk continues to use its superior network efficiencies to support its profits and that its moves into landside logistics are yet to have a major effect on its results. However, with return on capital just over 2% for the half year, Maersk still badly needs to continue the improvement. As Soren Skou, CEO of Maersk commented to the financial Times, “revenue growth is not of huge importance to us right now… I need to make some money.”

Source: Transport Intelligence, August 22, 2019

Author: Thomas Cullen