CMA CGM beats odds to improve profits in 2006
France’s CMA CGM, the world’s third-largest container line, has defied the downturn in the liner market by posting 5 percent higher earnings in 2006 compared to 2005, which will almost certainly be a unique achievement among its immediate rivals.
Marseilles-based CMA CGM returned a profit to shareholders in 2006 of $611 million, up from $584 million in the prior year.
Jacques R. Saade, the group’s founder and chairman, said the improved result was due to higher worldwide cargo volumes, in particular Asian exports, and the successful integration of the specialist African trades carrier Delmas, bought in January 2005 from compatriot Bollore.
“Despite the negative prognosis, 2006 was a good year for CMA CGM, which was not the case for all shipping companies,” Saade said diplomatically.
The French group’s revenue jumped 33 percent to $8.42 billion, from $6.33 billion in 2005. Delmas ($1.19 billion) accounted for 19 percent of the increase.
Due to what Saade described as “accounting difficulties,” CMA CGM has changed over to International Financial Reporting Standards (IFRS) and now reports its results in U.S. dollars.
CMA CGM and its ocean carriers subsidiaries, including Delmas and OT Africa Lines in the Africa markets, Australia’s ANL Container Line and United Kingdom-based MacAndrews, transported 5.98 million TEUs in 2006, a 28 percent rise over 4.68 million TEUs in 2005.
Saade said the group benefited from its long-time involvement in China, which accounts for roughly 30 percent of its volumes, but also by increasing its footprint in the booming markets of Brazil and Vietnam.
India is another buzz market that CMA CGM has tapped into, but Saade said it has proved frustrating due to congestion and the lack of sufficient facility for inland movement. Nonetheless, Saade said India is very much “part of the future” in terms of the company’s long-term thinking.
Saade also expressed disappointment with the lack of growth in the Oceania region.
As a result of its acquisitions and 28 (11 owned) new ship deliveries in 2006, CMA CGM’s fleet size increased 50 percent to 286 vessels with its total slot capacity rising 56 percent to just under 700,000 TEUs. This represents 7 percent of the worldwide shipping capacity, up from a 5.6 percent share in 2005, CMA CGM said.
CMA CGM has another 65 new vessels, of which 37 will be owned, for delivery from 2007 to 2010. The largest of these newbuilds will have a nominal capacity of about 11,400 TEUs.
The group has also added 13 new services in the year, bringing it to a total of 84 strings, and expanded its port coverage by 34 percent, or 104 new ports, to 403 destinations.
CMA CGM's successes comes in sharp contrast to its immediate competitors — A.P. Moller-Maersk, the largest ocean carrier group, anticipates a loss of $600 million in its shipping division in 2006 and TUI AG, parent company of the number five carrier Hapag-Lloyd, reported an operating loss from container shipping last year of 114 million euros ($152 million). Asked why CMA CGM was able to improve its profit while its main rivals struggled, Saade suggested it was due to it being family run rather that privately owned. “Families can make quick decisions and take risks as they are not playing with other people’s money,” he said.
The group’s other investments, aside from acquisitions and new ships, came in port terminals, intermodal transport and real estate.
In 2006, CMA CGM signed terminal concessions, equity interests and cooperation agreements in Mobile, Ala.; its hometown port of Marseilles-Fos; Malta, one of the Mediterranean’s largest transshipment hubs; Antwerp, Zeebrugge, Dunkirk, Le Havre and Montoir in Northern Europe; Martinique, Guyana and Guadeloupe in Latin America; Tangiers in North Africa; Um Qasr, Iraq’s biggest port; and Chiwan in China.
Rodolphe Saade, CMA CGM’s chief executive vice-president, who is being groomed to one day take over the helm from his father, Jacques, confirmed to American Shipper that CMA CGM did partner with Morgan Stanley to enter Dubai Ports World’s auction for P&O Ports North America, which eventually went to AIG. He added that getting a foothold in terminals on the U.S. West Coast is very important to the company “but difficult.”
Intermodal transport accounted for 19 percent of CMA CGM’s total freight volume at 1.15 million TEUs. Rail Link, CMA CGM’s subsidiary set up in 2001, carried some 50,000 TEUs in 2006. In September it partnered with Veolia Transport to start two joint venture companies with a target for this year of moving 130,000 TEUs per week on 22 trains to Europe’s major economic regions, with half outside of France.
Rail Link has also signed an agreement with Algeria’s National Rail Transport Co. (SNTF) to establish a joint company to transport containers by sea and rail out of the dry port of Rouiba, which it is hoped would develop opportunities for multimodal transport in North Africa.
CMA CGM has also signed a deal with China Railways Container Transport Co. Ltd. (CRCTC), part of China Railways, to extend the country’s rail network from the major ports to key inland destinations.
Discussions are also ongoing with local India operators and in Morocco with the North African country’s rail authorities to develop services for the new Tangiers port, scheduled to open next year.
The annual results were presented just before Jacques Saade laid the foundation stone of the group’s future 147-meter (482.3 feet) tall, 33-story headquarters, due for completion in the third quarter of 2009.
The new tower is just across from its current base overlooking the bay of Marseilles, but CMA CGM needs the extra space for its increasing number of employees. Worldwide, the group now employs 11,500 people, up 21 percent over the 2005 level. The new building will bring together 2,700 people who are currently dispersed over seven sites in Marseilles. That includes the 300 staff of CMA CGM Systems, its 50-50 joint IT venture with IBM started last year, who currently work out of mobile premises provided by the Marseilles Port Authority.
Not willing to give the exact price tag, Saade quipped about the cost of the new headquarters, which will include a dual-skin glass facade, Europe’s biggest private aquarium, a maritime museum and a panoramic restaurant open to the public. “The architect (Zaha Hadid, winner of the 2004 Pritzker Architecture Prize) is a diva!” he joked. “What she has done is very expensive but if you want something beautiful you have to pay.”
Other, slightly less grand, office projects are also underway in the United States and Turkey among other places.
Looking ahead to the prospects of the container shipping market and the group as a whole in 2007, Saade was in confident mood. “It has been an excellent start to 2007. We have started this year better than we did in 2005 and 2006,” he said.
“We will pursue our international strategy this year in a business environment that is likely to see higher freight rates and ongoing consolidation in the shipping industry,” Saade said in a statement. “We will also continue to develop in the intermodal transport segment, with the goal of providing customers with increasingly efficient door-to-door services.”
Going back to the consolidation theme, and what could prove to be a model for the rest of the top 20 carriers, some of whom have struggled with big takeovers, CMA CGM on March 1 bid for the relatively small Taiwanese carrier Cheng Lie Navigation Co. Ltd. (CNC). The offer is thought to be worth in the region of $160 million and continues CMA CGM’s strategy of buying strong regional players such as Delmas and ANL.
CNC had sales of $300 million in 2006, carrying 472,000 TEUs on 16 ships. CMA CGM said that the purchase would give it access to important Asian countries that it has been absent, most notably Japan, as well as helping to expand its volumes in the vast intra-Asian market. Understandable when you consider that it is the world’s single largest market, accounting for one-third of all international traffic, 37 million TEUs out of 115 million TEUs in 2005, according to figures provided by the French carrier.
CMA CGM has worked with CNC before. In late 2004, the French line started its first dedicated intra-Asia container service in partnership with CNC and Yang Ming, Taiwan’s second-largest carrier behind Evergreen, on a service using four 1,500-TEU vessels connecting mainland China, Hong Kong, the Philippines and Indonesia.
Another regional company that CMA CGM has partnered with in the past is Morocco state-owned Compagnie Maroccaine de Navigation (Comanav). Both are part of a consortium that gained the Tangiers concession and the Moroccan government is finalizing Comanav’s privatization. CMA CGM is widely considered the front-runner, and Saade confirmed his company’s interest.