Maersk Line losses top $1.3 billion
The A.P. Moller – Maersk Group said Thursday its container division Maersk Line had operating losses of $1.37 billion through the first three quarters of 2009.
It's a drastic drop from the $794 million the line made in the same period in 2008. Revenue also fell off significantly, 31.8 percent, to $15 billion. The container line's revenue drop was much steeper than that of the whole group, with the group seeing revenue declining 25 percent to $35.3 billion.
Maersk said its container line lost $296 per FEU in the first nine months of the 2009.
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'The main problem is still the rates,' Group CEO Nils Andersen said in a conference call with analysts Thursday. 'Volumes are not really the problem.'
Indeed, Maersk's volume is down 5.5 percent year-to-date, at 10.2 million TEUs, and was 3 percent lower in the third quarter, at 3.6 million TEUs.
The group turned in a before-tax profit of $2.1 billion from January through September, a 78 percent decline from the same period in 2008. The group's operating profit was helped by its oil and gas activities, while it said the container line and tanker divisions continued to struggle through the third quarter even as the global economy showed some signs of rebounding.
The last few weeks have also seen Maersk take some historical steps to bolster its financial position — including issuing new shares worth $1.6 billion and bonds worth $1.1 billion.
'As expected, the A.P. Moller – Maersk Group was still negatively affected by the challenging market conditions in the third quarter of 2009, particularly in the markets for the group's container vessels and tankers,' Andersen said in a statement accompanying its earnings. 'The strong focus on reducing the level of costs continues to yield positive results, and with sales of treasury shares and issuance of bonds we have taken steps to strengthen the A.P. Moller – Maersk Group's robust financial basis and long-term funding position.'
Rates per container fell 30.5 percent to $2,299 per FEU for the first three quarters and despite rising compared to the second quarter, actually fell further in the third quarter in relation to the third quarter of 2008, by 32 percent. Average fuel prices during the first three quarters fell 42.9 percent to $309 per ton. However, fuel rates have been gradually rising throughout the year to about $450 per ton.
'Rising fuel costs more than offset the third-quarter rate increases,' Maersk said.
'I feel as a group we're still making good progress,' Andersen said in the earnings call. 'Container rates are up, coming from the very low level we started the quarter with. But excluding the bunker surcharges, they're below the average of the first half. They've fallen a long way and there's a long way back. The rest of the group is doing well. I feel we are in a strong position to take advantage of opportunities that arise.'
Andersen said overall volume has been bolstered by better volume on the backhaul from Europe to Asia.
Volume increases are 'mainly due to success in getting backhaul volume,' he said. 'Volume is up 35 percent on the Asia/Europe backhaul (in the third quarter) compared to 6 percent down on the headhaul. We have seen an increase in market share, but we're not going for market share. (The backhaul from Europe) is not a particularly well-paying business.'
He said that increased volume from Europe can be pinned on the possibility that 'companies in times of trouble are pleased to do business with a solid partner.
'Rates are still below the level of the first half of 2009, when growing bunker surcharges are removed,' Andersen said. 'I believe things will edge in the right direction, but there is a long way to go before we reach profitable levels.'
As of the end of September, Maersk had pulled 13 vessels out of service, representing about 53,000 TEUs of capacity, or around 3 percent of its total fleet. More capacity is expected to be taken out of service in the last few months of the year, with Andersen suggesting that 13 ships may be pulled during the traditional slack season for container shipping.
The company said it has scrapped eight container vessels with a total capacity of 35,000 TEUs, and that further capacity reductions have been effected through reduced service speed and a 9 percent reduction of its chartered fleet from since Jan. 1.
The line said it has reduced costs, outside of fuel costs, per container transported by 7 percent in the first three quarters. This was aided by a reduction of 2,000 employees during the period. Group-wide, fuel consumption is down 13 percent, due primarily to slow-steaming of vessels. Overall cost savings year-to-date is $1.5 billion, Andersen said.
Cash flow, meanwhile, has dropped 53 percent to $4.1 billion. However, Maersk is in a better position than most in terms of vessel deliveries. The line is due to take delivery of only six vessels until 2011, with 15 due in 2011, 21 in 2012 and four in 2013.
Andersen said the signs of improving revenue through rates are encouraging.
'Average rates at the end of September were approximately $2,400 per FEU and we don't see any signs that the market is weakening in rates so we're hopeful we will stay above the average (which was $2,299 for first the three quarters),” he said.
However, Maersk lost more per container in the third quarter than in the second quarter, mostly because bunker costs increased in the third quarter faster than could be recovered.
Andersen also said the spot market rate was taking a turn for the better from the carriers' perspective.
'We had an unfortunate situation that spot rates were significantly below contract rates,' he said. 'That's no longer the case. We are starting to see some signs on the Asia/Europe trade already going into the fourth quarter. We feel we have better conditions for spot rate negotiations now compared to some of the very poor contracts we entered into previously.'
Going forward, Maersk expects higher rates in the fourth quarter than in the third, but lower volumes in line with the low season.
'For container trades, average rates including bunker surcharges for the fourth quarter are expected to be slightly above the third-quarter level, while volumes are expected to be somewhat below due to seasonal fluctuations,' the line said.
Maersk said its transpacific volume is down 13 percent in the first three quarters, with rates down 26 percent. Latin American trade is 20 percent by volume and 25 percent by rates. Transatlantic volume is down 18 percent and rates are down 5 percent.
Meanwhile, Maersk's terminal operating division, APM Terminals, is still profitable despite declines in volume and revenue. Volume is down 9 percent — better than the market, Andersen point out. Operating profit through the first three quarters is $303 million, down from $327 in the same period in 2008.
Andersen said the terminal division's relatively solid performance is down to better costing and getting more of its global terminals 'up to speed.' Additionally, APM keeps attracting a larger share of non-Maersk business, with 40 percent of volume coming from lines other than Maersk or subsidiary Safmarine. ' Eric Johnson