Weak marker drags Maersk Line to second-quarter loss

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Maersk Line crashed to a $151 million second-quarter loss that not even greater volumes and record low unit costs could offset.

Container volume carried by Maersk Line in the second quarter rose almost 7 percent to 2.6 million 40-foot-equivalent unit, with bunker prices declining 42 percent and unit costs improving to an all-time low of under $2,000 per FEU. Yet freight rates have been at such dismal levels that even with such cost management, revenue has continued to fall.

Freight rates declined by 24 percent in the second quarter and deteriorated across all trades, with North America and West Central Asia declining most, and Africa, Oceania and European trades were also notably lower than in the same period of last year, Maersk said in a statement.

Average revenue per FEU, a crucial metric, declined by 24 percent to $1,176 per FEU in the second quarter, which saw Maersk Line revenue plunging 19 percent year-over-year to $5.06 billion.

The liner business unit is the largest division in the Maersk Group, which recorded an underlying profit of $134 million and an 89 percent drop in net profit to $118 million in the second quarter. Profit was sharply down across all its businesses — Maersk Oil, APM Terminals, Maersk Drilling and APM Shipping Services.

“In a second quarter impacted by low growth and falling prices in nearly all our markets, the Maersk Group delivered an underlying profit of $134 million,” newly promoted Maersk Group CEO Soren Skou said. “The result is unsatisfactory. Cost reductions and operational optimizations, however, made a significant contribution to mitigating the impact of the negative market conditions.”

Skou said for profitability to be restored to 2014 levels, when Maersk Line was making double-digit returns on invested capital, it would be “very helpful” to have some increase in the revenue per FEU. “If it comes to price increases, that is helpful, but if not we will have to figure out other ways to generate more revenue per container,” he said.

The Maersk CEO said spot freight rates had been on the rise over the past few months, but it would take some time before that was reflected in the liner results. Low spot rates meant contract rates were also set on the trans-Pacific and Asia-Europe at levels far lower than the previous year.

“In May, the trans-Pacific contract rates were set much lower than last year and that wiped out the increase in spot rates. The contract levels will increase, but it is hard to predict when,” he said.

The liner result was far worse than expected by Drewry, which predicted a $57 million net loss, and by a poll of analysts by Reuters that predicted a $47 million loss. Skou said the group expected a “significantly” lower underlying profit in 2016 than the $3.1 billion profit it achieved in 2015.

Maersk’s board of directors initiated a strategic review of the company following former CEO Nils Andersen’s sudden exit in June and Skou said he would be in a position to report on the progress of the review before the end of the third quarter.

The poor second-quarter result follows on from a weak first quarter when the carrier reported a $37 million net profit, something Andersen regarded as a break-even result.

[joc]

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