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Maersk: Higher rates will offset impact of cyberattack

World’s-largest container carrier Maersk Line reported a highly profitable second quarter based on stronger-than-expected rates, but expects to lose $200 million to $300 million recovering from June cybersecurity breach.

   The A.P. Moller-Maersk Group’s container shipping arm, Maersk Line, has experienced a stronger-than-expected recovery in rates, evidenced by a $500 million swing in operating profit in the second quarter of 2017 compared to the same period a year ago, according to the Danish shipping conglomerate’s most recent financial statements.
   Maersk Line reported earnings before interest and tax (EBIT) of $376 million, compared to a $123 million loss in the second quarter of 2016. The average freight rate increased 22 percent year-over-year to $2,086 per FEU helping revenues to grow 21 percent to $6.1 billion for the quarter.
   To underscore the extent to which rates have strengthened, Maersk’s volume grew only 2 percent year-over-year to 2.7 million TEUs. The lack of volume growth is intentional, as the carrier is turning its focus to profitability after focusing on growing market share in previous quarters, Maersk Group Chief Executive Officer Soren Skou said in an earnings briefing with analysts and press Wednesday.
   Skou also addressed the cyberattack Maersk faced in late June as a result of the global NotPetya virus. Maersk estimates the financial damage of the attack to be in the range of $200 million to $300 million and that it lost 70,000 TEUs worth of volume over the two weeks following the attack. The company said the attack didn’t result in the loss of any data to third parties, however.
   Skou said he also doesn’t believe Maersk will have lost any customers long term.
   “Most business leaders see this type of cyberattack as ‘this could happen to us,’” he said. “Companies try to help each other.”
   The financial impact of the cyberattack won’t reflect much in Maersk’s second quarter results as the attack took place with only days left in the period.
   Maersk executives seemed to imply that the recovery in rates – an unexpectedly strong recovery – helped to offset the financial damage of the attack. Both unforeseen events effectively contributed to a result that Maersk had forecast earlier in the year.
   The strong results on the liner side were not matched by Maersk’s terminal operating arm, APM Terminals, which slumped to a $118 million loss for the quarter compared to a $141 million profit in the same 2016 period. Skou said the terminal business faces two underlying challenges: revenue per move due to competitive pressure and a lack of growth in volumes.
   Maersk said APMT negotiated 18 new volume agreements globally in the first half of 2017, and lost 5 during that same timespan. The positive impact of those new agreements are expected to reflect in the second half of the year, Skou said.
   The group announced in 2016 that it was more tightly aligning its transportation business units, including Maersk Line, APMT and freight forwarder Damco, into single division. As such, APMT is giving more priority than in years past to Maersk Line volumes.
   Skou also touched upon the rumors of CMA CGM placing an order for up to nine 22,000-TEU vessels. He said the global orderbook is 13 percent of the existing fleet, so the so-called “runoff” of that orderbook is “very fast.” If no further ships were ordered, the orderbook would be down to 7 percnet by the end of 2018 and 1 percent by the end of 2019.
   “That’s positive,” he said. “Even though ship order costs are low now, there’s no incentive to order more capacity right now. It’s a hard case to make to go out and order ships right now versus what’s available in charter market. There have been no large ships ordered since the third quarter of 2015.”
   Skou didn’t discount the possibility of ships being ordered, but said Maersk has no plans to order big ships in 2017 or 2018.
   At the group level, Maersk, which has a oil, gas, and drilling interests outside of its transportation division, saw operating profit fall 54 percent in the second quarter to $302 million, based on impairments amounting to $732 million incurred by APMT, Maersk Tankers, and its towage and salvage division Svitzer.
   Group revenues rose 8 percent year-over-year to $9.6 billion in the second quarter.