Maersk warns of grim 2013
• Exceeds 2012 profit forecast
A.P. Moller-Maersk Group last Friday warned of a grim outlook for the container-shipping industry this year, as spare tonnage in Europe and Asia risks putting downward pressure on freight rates after the Danish company’s own price increases and cost cuts contributed to improved profit in the fourth quarter.
Maersk, the world’s largest container shipping company by revenue, said that it would focus more on its shipping-terminals business in emerging markets and developing its oil and gas activities to sustain earnings growth. Unless the container-shipping industry reduces capacity, there will be a continued squeeze on freight rates, according to Chief Executive, Mr. Nils Andersen.
He said that the outlook for traffic from Asia to Europe was particularly “bleak”.
In 2012, freight rates recovered some of the ground lost in 2011, but fell back in the fourth quarter as oversupply and sluggish growth in the world’s largest consumer markets, notably in Europe, diminished world trade.
The gloomier outlook may make it hard for Maersk and European rivals like France’s CMA CGM and Germany’s Hapag-Lloyd to sustain current rates let alone push through more increases while fuel prices remain high.
“The increase in freight rates was accepted by customers when container lines made losses because they could see it was necessary,” an analyst at Nyskredit, Mr. Ricky Steen Rasmussen, said.
He said, however, that shipping companies are unlikely to be able to push through significant increases now that they are profitable.
Maersk and its major rivals, according to him, “will only be able to increase prices half as much as they wish.”
Maersk in recent years has increasingly focused on its non-shipping activities where it sees faster growth, from building and operation shipping terminals in emerging markets and to oil exploration and production.
The Maersk Line shipping business represents the bulk of the company’s revenue, but Maersk Oil—with operations on several continents—has delivered most of the profits.
The company sees significant long-term potential for its oil business and aims to increase production through the end of the decade as it continues to improve technology and explore in new markets.
But 2013 will present an earnings challenge to the oil business as a reduced ownership of assets in Denmark and lower production will hit the bottom line.
For now, Maersk remains vulnerable to sluggish growth in world trade particular as slack growth in Europe has curbed demand for imports.
Maersk expects negative first-half growth in the European shipping business, and a glut of capacity that makes it difficult for any players in the container shipping business to make money.
Maersk returned its shipping line to profitability in 2012 and expects to improve again in 2013.
“It was a hard year for the container market, so we are glad we made profit in this segment,” Andersen said. In 2013, according to him, container shipping growth is seen at a “modest” four per cent to five per cent. Andersen said that higher prices “helped us a bit” as rates increased two per cent in 2012, but the company’s emphasis is on cost reduction and becoming “more and more competitive.”
The company is introducing newer, larger, more fuel-efficient ships to its fleets to reduce costs in tandem with charging higher prices.
Maersk in 2011 ordered 20 of these so called Triple-E vessels, the first is to be delivered in July.
In September, Maersk introduced a round of “slow-steaming” measures aimed at reducing ship speeds to save fuel amid slack demand.
The company said that net profit rose steeply to 5.54 billion Danish kroner ($979.5 million) during the fourth quarter, compared with 1.62 billion kroner in the same period a year ago.
The biggest contributor was its container segment Maersk Line which turned a loss of 3.18 billion kroner into a profit of 1.94 billion kroner.
Analysts had expected a net profit of 4.51 billion kroner. Full-year net profit rose 42 per cent to 21.7 billion kroner from 15.2 billion kroner a year earlier.
Revenue increased nearly three per cent during the fourth quarter to 84.8 billion kroner, compared with 82.5 billion kroner the year before.
Analysts had forecast 84.51 billion kroner for the quarter.
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