CMA CGM intends to break even by December
French liner carrier CMA CGM said Wednesday it expects operations to start breaking even financially in December.
The embattled line, like all of its competitors, has been battered this year by historically low rates and a demand slump in the first half that is only recently has showed signs of gradual improvement.
CMA CGM, which is not publicly traded, said it lost $515 million in the first half of the year and has sought advice on how to restructure its business in recent months. It is also negotiating with its lenders about how to fund a major expansion to its vessel fleet in an environment in which rates are expected to remain depressed.
Officials confirmed in late October that the line has debts of $5.6 billion, mainly tied up in the fleet expansion drive that includes an order book of 59 vessels with 500,000 TEUs of capacity, the second-largest order book globally.
CMA CGM said in a statement Wednesday that reduced operating costs and improved rates were the primary reasons for the rosy December outlook.
'The savings plan applied throughout all segments of the group, combined with increasingly firm volumes and rates, is already producing its initial effects,' the line said. 'The recovery of operating profit illustrates the shipping expertise of the CMA CGM teams, which have been entirely focused on achieving this objective.'
The line pointed to several factors for the apparent turnaround. It has closed secondary lines to 'concentrate volumes on the main lines, allowing the group to take advantage of strategic vessels.' It has increased strategic shipping partnerships 'with the twofold aim of improving service quality and rationalizing operating costs.' It has returned chartered ships whose contracts expired this year. And it has better aligned capacity with demand by pulling vessels and rationalizing services.
Aside from dealing with low rates and an expansive order book, the line has had to beat back rumors that its lenders were unhappy with the company's management. Reports in late October suggested that some banking partners wanted to see founder and chairman Jacques Saad' depart before debts were restructured, a claim Saad' and the line denied publicly.
Further reports have suggested that Saad' would be amenable to outside investment, and that the line is considering financial aid from the French government, as rival Hapag-Lloyd has received from the German government.
The announcement Wednesday is somewhat surprising given that other lines, though pleased that rates are rising compared to the first half, have taken a cautious approach to the rest of this year and next year. Another troubled line, Zim, is not expecting to turn a profit for at least three years, for example.
But in responding to persistent rumors about its stability, CMA CGM has continually said it expected to return to profitability sooner rather than later. The line is the world's third-largest and has sought to press the advantages it enjoys in terms of economies of scale by forging previously unheard of vessel-sharing partnerships with its two European rivals Maersk Line and Mediterranean Shipping Co.
The line said it would be able to save yet more money by joining in the drive to slow down vessels on major trade lanes — so-called 'super eco speed' — though savings will be mitigated if fuel prices continue to rise as expected.
The key development in returning to break even, however, is a return to viable rates. As mentioned above, CMA CGM has been more optimistic than most in this regard, saying Wednesday that 'a rebound in cargo rates has been observed on most of the lines,' including Asia/Europe, Asia/Mediterranean, and Asia/South America. Notable by its absence is the transpacific trade, though the carrier said 'the group's other lines are expected overall to reach the breakeven point by the end of 2009.'