The headlines may scream about the CEO of Maersk predicting a 20-25% fall in global container volumes, but the detail of Maersk’s Q1 results show that up until the end of March at least things were not that painful for the marine logistics group.
Revenue for the quarter edged-up by 0.3% year-on-year to US$9.6bn but EBITDA (Earnings Before Interest, Depreciation and Amortisation) jumped by 23% to $1.5bn. The main thrust of these results was stronger profits margins and better return of capital assets despite a fairly flat market.
A major problem that Maersk encountered was the introduction of the IMO2020 fuel regulations, which drove up the price of bunker fuel in January and February. In turn, this helped drive up freight rates by 5.7% with the underlying price falling by 0.7%. Volumes fell by 3.2%, with head haul volumes falling by 4.6%. The lead cause of this was the crisis in China in February with East-West volumes falling by 5.9%.
Yet Maersk’s Ocean shipping division not merely sustained margins but drove EBITDA up by 25%. It did this by fast and substantial capacity reductions. The latter fell by 3.5%, driven by 93 blanked sailings. This also enabled Maersk Ocean to drive down bunker fuel consumption by 7.5% relieving the increase in fuel price.
The other parts of the Maersk business had a similar experience. At ‘Logistics & Services’, revenue may have gone down by 5.1% but EBITDA went up by 42% to $68m. Maersk has not broken out the figures but it hints that freight forwarding had a harder time but better utilisation of warehousing delivered profits. A similar trajectory was seen at ‘Terminals & Towage’ where revenue was down 9.3% yet sustained its EBITDA, edging-up by $7m to $276m.
What Maersk appears to have done is successful manage its capacity in a falling market. Through March, although throughput volume in both shipping and terminals was falling, often dramatically, there was also severe congestion and market dysfunction. Maersk seems to have successfully exploited this. This implies that Maersk has agile, effective management systems.
CEO, Søren Skou, struck a note of pessimism talking about “a challenging year” and that “we expect volumes in Q2 to decrease across all businesses, possibly by as much as 20-25%”. However, he did not mention that fuel costs have collapsed and demand for warehousing, especially in port locations has gone through the roof. Therefore, through the gloom, there might be considerable grounds for optimism at Maersk.
Source Transport Intelligence, May 14, 2020
Author: Thomas Cullen