Maersk Line suffers $483 million loss

   The container carrier Maersk Line said Monday it had $483 million in operating losses in 2011 thanks to a huge downfall in container freight rates in the second half of the year.
   The performance represents a huge downward turn from the record $2.8 billion the container line made in 2010. Maersk Line also made $438 million in the first half of 2011, underscoring the depth of the downturn in the second half of last year.
   Maersk Line’s revenue climbed 4.5 percent, to $25.1 billion, but its average rate per 40-foot container fell 7.7 percent, to $2,828. The line’s volume carried in 2011 rose nearly 11 percent, to 16.2 million TEUs.
   “Competition was intense during 2011 as many carriers took delivery of new tonnage especially during Q2 and Q3,” the parent company A.P. Moller-Maersk said in its annual report released Monday. “A large number of +10,000 TEU vessels were delivered and employed on the Asia–Europe trades resulting in redeployment of smaller vessels to other trades. This had a negative impact on freight rates especially on the Asia–Europe trades where rates declined to unsustainable levels.”
   The Maersk Group, as a whole, secured profits of $10.3 billion in 2011, helped largely by handsome profits from the company’s oil business. The 2011 profits were marginally lower than the $10.6 billion made in 2010. Net profits stood at $3.4 billion, compared to $5 billion in 2010. Of the group’s five major business units (liner shipping, oil, container terminals, drilling, and miscellaneous, which includes the freight forwarding/logistics business Damco) all except the liner business recorded net profit increases in 2011, highlighting the diversity of the company’s portfolio relative to its liner shipping competitors.

Westlie

   Group Chief Financial Officer Trond Westlie declared the 2011 result “satisfactory” considering the difficulties present in the liner shipping market. Westlie stood in for Group Chief Executive Officer Nils Andersen, who is on leave while recovering from heart valve surgery in December, during an earnings teleconference with analysts Monday.
   Among Maersk’s other transportation and logistics related units, APM Terminals had another strong year in 2011. The company’s container terminal operating arm garnered operating profits of $767 million, a 15.8 percent drop from 2010, but a helpful offset to the woes of the liner business. Maersk added that, excluding sales gains and impairments, APMT’s profits rose 24 percent in 2011. Volume handled at APMT facilities (on an ownership weighted basis) rose 6.3 percent, to 33.5 million TEUs in 2011. Revenue rose 10.1 percent, to $4.7 billion.
   Damco, the freight forwarding business, saw 2011 operating profit rise 29.3 percent, to $97 million, on revenue that rose 2.2 percent, to $2.8 billion.
   Propping up the company’s bottom line in 2011 was its oil division, which saw operating profits grow nearly 34 percent, to $7.8 billion. Revenue grew 23.1 percent, to $12.6 billion.
   Westlie, however, cautioned that profits from the oil business would be 20 percent lower in 2012, due to a reduction in the company’s share of oil production in Qatar.
   Maersk also expects the liner business to be loss-making in 2012, with an overhang of supply still burdening its core trade lanes, most notably Asia-Europe.
   Westlie emphasized a number of times that Maersk was happy with its current market share position on its container trades and that it would defend those positions if required.
   “We will defend that market share,” he said. “Will make certain we take actions to uphold that market share.”
   Maersk expects global container demand to rise between 4 and 6 percent in 2012, but projects less robust growth on its key Asia-Europe lane, mostly due to slow or no growth in European GDP.
   Aside from lower freight rates, induced by overcapacity on Asia-Europe, Maersk Line’s performance was also hurt by rising costs, including fuel and terminal charges, the annual report said. Westlie said the company’s aim is to beat the market by a 5 percent operating margin and it has been successfully working toward that goal.
   Maersk has in recent weeks announced planned rate increases on the Asia-Europe trade as it seeks to haul up average revenue to what it considers sustainable levels. When asked whether the line has been successful thus far in achieving those increases, Westlie declined to comment. He was then asked what impact the pending commencement of new operational alliances on the Asia-Europe trade might have on attempts to raise rates.
   “We still feel real consolidation in the industry is needed,” he said. “We are waiting to see what the consolidation in the infrastructure will do. We are seeing infrastructure consolidation, rather than actual consolidation, and it remains to be seen what impact that will have.”
   Maersk Line’s rate trouble on the Asia-Europe was highlighted by a 19 percent decrease in average rates on the trade in 2011, despite volume growing 16 percent. Rates on the transpacific declined 7 percent for Maersk, and no other individual trade saw worse than that 7 percent decline. Oceania and intra-Asia rates grew 6 percent and 5 percent, respectively.
   According to American Shipper liner research affiliate ComPair Data, 26.9 percent of Maersk’s allocated capacity is currently tied to the two-way Asia-Europe trade.
Westlie said that the concern in dragging rates up on the Asia-Europe lane is that they faltered significantly in the fourth quarter of 2011. The line’s average fourth quarter rates were 5.5 percent lower than for the year as a whole, and 11.9 percent below the fourth quarter of 2010, so the starting point was low even as the line seeks rate increases from customers.
   In regards to Maersk’s recent decision to pull Asia-Med capacity by 9 percent, Westlie said it was a tactical, rather than strategic move to respond to currently unviable rate levels. He said the line has a number of potential measures in its “toolbox” which it could use to respond to market developments, including idling of ships, returning of chartered tonnage, or further vessel sharing agreements.
   As of now, the line has no plans to idle any ships, and will instead operate its ships more slowly and include more port calls. — Eric Johnson