Lower costs boost Maersk Line to a $454m Q1 profit

As many other container lines remain mired in red ink Maersk Line reported a $454m profit for the first quarter of 2014.

Maersk’s first quarter profit more than doubled from $204m in the same period in 2013, despite freight rates being lower than a year earlier.

“The improvement was driven by higher volumes and lower unit costs through the continuous focus on operational cost savings mainly from vessel network efficiencies and improved vessel utilisation, supported by lower bunker price,” Maersk said.

The Danish company said that average freight rates fell by 5.1% in the quarter to $2,628 per FEU compared to $2,770 per FEU in the same period a year earlier. However, the container line was able to improve its profitability by reducing its unit cost to $2,628 per FEU, down from $2,871 per a year earlier. Volumes increased by 7.3% in the quarter to 2.2m FEU.

Maersk has also continued to reduce its fuel consumption, which was 9.5% lower per unit than in the first quarter of 2013.

“Total bunker cost of $1.2bn was reduced by 10% compared to Q1 2013 due to 2.9% lower total bunker consumption and further driven by a 7.2% decrease in the average bunker price,” the company said.

Maersk said growth in the container market slowed to 3% in the first quarter, slightly lower than it was in 2013 as a whole. Looking ahead this figure is expected to rise and it said: “The growth in the rest of the year is expected to be around 4-5% on the back of gradually improving global macroeconomics.”

Maersk shares yesterday rose as much as 4.2 percent in the Danish capital, the steepest intraday gain since Jan. 7, and were trading up 3 percent to 13,730 kroner giving the company a market value of 293 billion kroner ($53.9 billion).

Parent Maersk, which also owns a port operator and an oil division, said it now expects 2014 underlying profit, which excludes discontinued operations, impairment losses and divestment gains, will be about $4 billion, up from a previous estimate of about $3.6 billion. The higher expectations are “driven by improved operational performance and utilization,” the company said.

Freight volumes increased 7.3 percent in the quarter while rates declined 5.1 percent. Unit costs fell by 9 percent, the company said.

“The unit cost decline reflects a high load factor given that volumes increased more than expected,” Moerkedal said. “Load factors may and will fluctuate and it could be difficult to cut unit costs at the same pace in coming quarters.”

Maersk Line also said yesterday that plans to form a vessel sharing agreement with its two biggest competitors, Mediterranean Shipping Co. and CMA CGM SA, has been delayed, pending competition-authority approval.

The so-called P3 network, which includes 255 vessels on 29 loops, will start operating “in the autumn of 2014” compared to a previous estimate of a start in the second quarter, the company said.