[120218.EN.BIZ] Maersk Falls Short of Its US$1b Profit Target, Only Managing $541m in The Black

DANISH shipping giant Maersk has come up short of its $1 billion profit improvement target for 2017, due mainly to the impact of a mid-year cyber attack, rising fuel prices, and industry overcapacity.

However, higher rates and rising container volumes lifted the world's biggest shipping line to a $541 million profit last year.

Maersk Group's container shipping unit reported an 11.7 per cent year-on-year increase in the average freight rate, and a 3 per cent rise in volume to 10.7 million TEU leading to a 15 per cent increase in revenue to $23.8 billion. But, the cyber attack cost the carrier $250 to $300 million in the third quarter and rates fell through the second half while bunker fuel prices rose.

"We were not able to deliver on the guidance of a $1 billion improvement in our 2016 profits, mainly because of the cyber attack," Maersk Group CEO Soren Skou said. "There were strong underlying market conditions through most of the year, but the result was negatively affected by the cyber attack, weaker rates, and increasing bunker costs, especially in the fourth quarter."

Volume on Maersk Line's east-west services grew by 2.4 per cent to 3.77 million FEU, on north-south by 2.2 per cent (5.21 million TEU), and by 7.3 per cent on the carrier's intra-regional operations (1.73 million TEU), reflecting strong demand with an estimated market growth of about 5 per cent compared with 2016, IHS Media reported.

Chief commercial officer of Maersk Line, Vincent Clerc, said the volume recovery was encouraging and suggested there was no long-term affect of the cyber attack.

Maersk Line reported that freight rates increased across all trades in 2017. East-west rates increased by 19.3 per cent, driven primarily by Europe trades, while an 8.9 per cent rise in north-south rates was led by West Central Asia and Africa trades. Intra-regional rates increased by 24 per cent.

While Maersk Line reported average freight rates of $2,005 per FEU across its global operations that were almost 12 per cent higher than those achieved in 2016, the average unit cost of transporting each container also rose, coming in at $2,079, or 5 per cent above that of 2016. Rates for 2017 were well below the average per FEU achieved in 2013 and 2014 when it surged past $2,600 per FEU.

Maersk Group as a whole reported an underlying profit of $356 million on revenue of $30.9 billion derived mainly from its transport and logistics operations. The group is divesting itself of its energy-related businesses, but if the financial performance of these discontinued operations is included, the group made a loss of $1.16 billion in 2017.

The acquisition of Hamburg Sud and divestment of Mercosul Line were completed in December 2017, with the German carrier contributing $458 million in revenue in the last month of the year at an underlying loss of $8 million.

Cost synergies from the merger are expected to be between $350 and $400 million by 2019, primarily from integrating and optimising the networks, as well as standardised procurement.

Maersk Line said in its earnings statement that, supported by strong demand growth, earnings in the container liner industry strengthened in 2017 compared with a weak 2016. However, the carrier highlighted the surplus capacity that is in the market that was challenging the fundamentals.

"The current wave of mergers in the industry, which started with the merger of Hapag-Lloyd and CSAV in 2014, has increased the top five market share in the industry from 45 per cent in 2014 to 64 percent, once the Cosco-OOCL deal and Japanese joint venture [Ocean Network Express] have been implemented in [first quarter] 2018," the carrier said.

Source : HKSG.