Maersk Line nets $467 million Q1 profits

Maersk Line nets $467 million Q1 profits    Maersk Line on Wednesday announced first quarter operating profit of $467 million, bucking the trend of lines incurring operating losses in the first three months of 2011.
   Maersk Line's operating profit rose 99 percent from the same period in 2010 — a year in which the Danish line made record profit. But Nils Andersen, chief executive officer of the A.P. Moller – Maersk Group, cautioned the line expects a 'tough second quarter' due to pressure on rates.
   Maersk Line's performance helped the group to a $2.9 billion operating profit in the first quarter, nearly 50 percent higher than a year ago. The company was also aided by healthy returns from its expanding oil business, with average prices up 38 percent from the first quarter of 2010, to $105 per barrel.
   The container line saw first quarter revenue rise 11 percent to $6.4 billion, on a 4.5 percent increase in container volume to 3.7 million TEUs. Average rates in the period were 2 percent higher than the corresponding period in 2011 at $1,454 per TEU, but Andersen warned that rates began dropping toward the end of the quarter. Average bunker rates rose 11 percent.

Andersen

   Maersk classed its group performance in the quarter as 'satisfactory,' and Andersen said it is particular so in light of the losses announced by some of Maersk's container line competitors. Despite the trepidation over second quarter rates, he said those losses should prompt the industry to be more diligent in seeking compensatory rates on key trades in the second half.
   'Rates will have to increase because we have seen the first quarter figures for others in the industry and they are loss-making,' he said. 'We know the industry will be under pressure, but we're not trying to flag that Maersk Line will lose money (in the second quarter). But we do expect it to be a challenging quarter.'
   When asked whether Maersk will strive to retain its market share, Andersen said a rate war would be unproductive.
   'In the short term, we don't see a need for tactical price wars because the market is growing nicely,' he said. 'There has been growth in the first quarter on the back of a very busy first quarter last year.
   'We expect to keep our market share this year — based on a growth of 6-8 percent in market. That's what we have tonnage for. But the real issue is the decisions you make on capacity. We have decided now that we are going to order more ships — enough to at least keep our market share. We believe we have better access to financing or financing costs that the rest of the industry, and we feel we'll be able to fill the Triple E ships (Maersk's newly ordered 18,000-TEU vessels) without destroying the market. Yes, there's been a lot of tonnage coming on, especially in Asia/Europe, but we don't really believe this calls for a price war.'
   Andersen did admit Maersk tends to fare better than some of its competitors in low-rate environments because it relies more heavily on long-term contracts.
   He also addressed a recent article in the maritime press suggesting Maersk would be structuring contracts based on an index developed by Container Trade Statistics, the rate information entity borne out of the demise of the European Liner Affairs Association. Andersen said Maersk does have some index-linked mechanisms in contracts that accounts for significant deviations in rates, but that the concept went public before it was fully mature.
   'I don't see a major change in the pattern of contracting,' he said.
   Maersk does see volume and rates picking up in the second half, a development Andersen said would be more in line with the usual pattern of container shipping: 'It's normal in our business to have more volume and higher rates in second half — 2010 was unusual.'
   Maersk's terminal operating arm APM Terminals saw profits climb 29 percent to $168 million, on throughput that rose 8 percent to 15.6 million TEUs, which Andersen said was roughly in line with market growth.
   'Global growth in terminals is not relevant to profitability,' he said. 'Every terminal has to stand on its own, so global market share is not relevant.'
   He said APMT's exposure to the U.S. container terminal market, where growth lags emerging markets, has held the company's growth back a bit in relation to operators whose portfolio is heavier in Asia. ' Eric Johnson