Maersk rate outlook for 2009 “extremely negative”

Maersk rate outlook for 2009 “extremely negative” Maersk rate outlook for 2009 “extremely negative” A.P. Moller – Maersk Group in reporting its annual results for 2008 warned the outlook for 2009 was uncertain with results likely be lower than in 2008. The company had $3.4 billion in profit in 2008, compared to $3.5 billion in 2007. Revenue was $61.2 billion, compared to $51.2 billion in 2007. The company said the revenue increase was due mainly to high oil and gas prices and freight rate increases in the container business, though that was mostly the result of recovery on bunker surcharges. Results for 2009, ‘excluding gains on sales of ships, rigs, etc., is expected to be significantly below 2008 which was $2.6 billion,’ the group said, adding that with the present market situation it is not realistic to expect gains on asset sales of any significance. ‘2008 was a turbulent year, and the global economic crisis had a negative impact on the group’s assets and led to a number of write downs and value adjustments,’ said Nils S. Andersen, the group’s chief executive officer ‘Thanks to good progress in the operational result in the business units, the result stayed at the same level as last year, and cash flow from operations improved by $1.2 billion to $8.5 billion.’

Andersen

The company cut its workforce by 4,500 people in 2008, and closing a Maersk Line service center in China at the end of the year were major parts of reductions. The company incurred $245 million in restructuring costs in container business under its so-called ‘Streamline’ program. In 2008, Maersk Line profit rose to $205 million from $106 million in 2007. Revenue for the liner carrier division was $28.7 billion compared to $25.9 billion in 2007. Freight rates in 2008 rose an average 8 percent over 2007, mostly due to high freight rates the first half of the year. Volume was 7 million TEUs, a 2 percent increase over 2007. Average bunker prices jumped 51 percent from 2007, but fuel costs rose just 43 percent because fuel consumption was down 5 percent. The company wanted that in 2009 ‘the outlook for container rates is extremely negative.’ Andersen said it is “surely going to be a tough negotiation to increase rates.” January volume was 20 percent lower than January 2008. It explained also that at current levels a 5 percent change up or down in average freight rates, excluding bunker charges, can result in a $700 million change in its profit after taxes. A 5 percent change in volumes can result in a $300 million swing in profits. Maersk said 40,000 40-foot equivalent units of weekly capacity was withdrawn from Asia/Europe trade in second half of 2008, including eight 6,500-TEU vessels withdrawn in November. Asia/Europe volumes were off 2 percent for the year despite a 1 percent first- half increase. Volumes were also 2 percent in the transpacific and 1 percent in Latin America. Transatlantic volume was unchanged from 2007 and Africa volume rose up 8 percent. Maersk Line took delivery of 26 new vessels, sold nine vessels but four were chartered back on 10-year charters. Maersk said its APM Terminals unit ‘will continue to invest significantly in ongoing projects, with increased focus on operational improvements at existing terminals.” APM’s revenue for 2008 was $3.1 billion, up 24 percent from $2.5 billion in 2007, while profit improved to $161 million from $106 million in 2007. The Maersk Logistics and Damco units had a good year, with profit rising to $53 million in 2008 from $43 million in 2007. “The container industry has been managing capacity assuming demand would improve each year,” Andersen said. “The additional capacity will give us a challenge and we must live with the fact that there will be significant overcapacity in the coming years. We anticipate that we won’t be as affected.’ He explained that Maersk has an arrangement that allows them to accept new deliveries in a smooth manner that suits their needs. But he said while Maersk can control its own tonnage, it would still be affected by overcapacity in the industry. Andersen added that Maersk has laid up a lower percentage of its fleet capacity than its competitors, but added more ships would be laid up if volumes stay down. “We lay up ships unemotionally,” he said. ‘ Chris Dupin and Eric Kulisch