The decade in finances

Analyzing 10 years of profit, revenues reveals major changes among top publicly traded lines.

By Eric Johnson

  The container-shipping industry’s economic roller-coaster ride the past four years has obscured the relative tranquility of the merger and acquisition scene in that time.
   Since 2005 — when the A.P. Moller – Maersk Group acquired P&O Nedlloyd and Hapag-Lloyd acquired CP Ships — there has been a dearth of major acquisitions, seemingly lending an air of stability to the industry.
   The “Who’s Making Money” report annually looks at profit and revenue trends in the last five years among the top publicly traded lines (“The big rebound,” July American Shipper, pages 28-36 or online at www.AmericanShipper.com). But looking at a longer timeframe (back to 2001) allows for a deeper glimpse at how the players in the industry have evolved.
   A caveat to consider when viewing the tables provided here: in recent years, publicly traded lines have become much clearer in delineating genuine liner revenue and profitability in their financial statements. In the early 2000s, liner performance for many carriers was lost amid other activities like bulk and tanker shipping, terminals and logistics. The last three to four years provide the truest comparisons among the world’s top lines.
   More than a few interesting storylines have emerged. For instance, COSCO Container Lines, which wasn’t even examined in the Who’s Making Money reports until 2005, has become the container line with the industry’s sixth-highest revenue (that’s including privately owned lines Mediterranean Shipping Co. and CMA CGM).
   American Shipper previously tracked CMA CGM’s financials, but stopped doing so in 2009 due to it not being publicly traded. MSC falls outside that scope as well.
   Meanwhile, a cadre of major lines that were prominent in 2001 has fallen away by 2010, either due to acquisition or declining business.
   Hapag-Lloyd used its acquisition of CP Ships to seriously augment its operating revenue, and that finally paid dividends during the bumper 2010, when it secured record operating profit. The German line now has the industry’s fourth-highest turnover, meaning the four highest-grossing lines in the world can be found in a radius between Copenhagen and Geneva.
   That development has come somewhat at the expense of Japan’s Big 3 lines, which have seen their impact on the industry erode over the last decade. Again, true comparisons are difficult because the Japanese lines rolled their profit and revenue figures into monstrous group totals that make current liner revenue look paltry.
   While the three lines are in the middle of the pack in terms of liner revenue these days, they’re in the bottom tier in terms of profitability.
   MOL’s liner profit margin began to dip in the mid-2000s (it was the only one of the three Japanese lines to break out container line revenue and operating profit, until about 2007). That was a sign the Japanese lines were struggling to compete with the expanding and powerful European lines, as well as the smaller, more nimble, container-focused carriers in Asia.
   Maersk’s grip on the market is also noticeable when its 2010 financials are compared to those in 2004, a hugely successful year for the industry (and the year prior to Maersk acquiring P&O Nedlloyd). Maersk recorded roughly double the operating profit of the next best publicly traded carrier in 2004. In 2010, its operating profits were triple that of the second-best performer.
   On the opposite side of the coin is APL, which has muddled through a funk the last three years. The line is a revenue powerhouse (fifth-highest turnover, counting MSC and CMA CGM), but that steady growth in revenue hasn’t translated into profit. It has lagged its similarly sized competitors. Hapag-Lloyd’s operating profit over the past three years is $240 million higher than APL, while Evergreen Line $280 million higher. Only COSCO, in that fleet size range, has fared worse than APL.
   The downturn in profitability is so pronounced because from 2003 through 2006, hardly any line was as profitable as Singapore-based APL. The positive news is that, aside from the blip of 2009, APL’s revenue has consistently grown through the last decade. It’s one of only five publicly traded lines whose revenue in 2010 was significantly higher than in 2008, and the highest-grossing carrier on that short list.
   Then there’s Zim, whose steady, if unspectacular, reliability came crashing to the ground in the second half of 2007 through 2009. As recently as 2006, Zim seemed to be in a relatively strong position in terms of operating margin. But the Israel-based line now has the lowest revenue of any publicly traded line analyzed by American Shipper. More than that, its revenue growth the past decade hasn’t matched that of the lines it’s chasing.
   In 2001, Zim had higher revenue than China Shipping and Yang Ming. Both now have higher revenue than Zim (in China Shipping’s case, 50 percent more). In 2001, it was relatively near Hapag-Lloyd, OOCL and CSAV in turnover. Those three lines now have anywhere from 46 percent to 123 percent more revenue.
   In 2001, Zim had 18.1 percent the revenue of Maersk (and that was when Maersk included non-container activities in its revenue). In 2010, it had 15.4 percent of Maersk’s pure container shipping revenue.
   By fleet size, Zim is 11 percent bigger than Hyundai Merchant Marine, but the Korean line had 37 percent more revenue in 2010 and nearly three times the profits. Yang Ming, with virtually the same size fleet as Zim, had 2.5 times the profits of the Israeli line in 2010 on 14 percent higher revenue.
   The fallow period of consolidation the past six years belies major changes in the industry the past decade, and particularly masks which lines may be vulnerable to takeover in the coming decade.