Maersk turns things around in 2Q

   The container carrier Maersk Line had $306 million in operating losses in the first half of 2012 but turned a $265 million operating profit in the second quarter after losing $571 million in the first quarter of 2012, parent company A.P. Moller-Maersk said Tuesday.
   The container line had first half profits of $402 million in 2011. But the second quarter profit represented a positive turnaround from the $49 million it lost in the same quarter in 2011.
   Maersk’s liner revenue rose 10 percent year-on-year in the first half to $13.6 billion, and by 16.7 percent in the second quarter to $7.3 billion. Container volume rose 15.8 percent in the first half to 8.8 million TEUs, and by 10 percent in the second quarter to 4.4 million TEUs.
   The second quarter recovery was evident in Maersk’s increased revenue from container movement. Average freight rates rose 4 percent year-on-year to $3,014 per FEU.
   Spot rates rose in the second quarter on the Asia-Europe lane, Maersk’s most important, but have reached a plateau more recently, even as lines implement rate hikes.
   “Even if spot rates are at their peak now, there’s still some room for us to improve rates,” Group Chief Executive Officer Nils Andersen said during a conference call Tuesday. “Having said that, we believe spot rates should increase. There’s limited room for downward adjustments. We’ll definitely continue our efforts to increase rates until we achieve an acceptable return. Even if volumes are unexciting in the second half, which we expect they will be, the solution for us is not lowering rates.”
   Andersen said Maersk Line is typically less affected by fluctuations on the spot market because it has a higher proportion of contract volume than its major competitors, particularly on its core Asia-Europe lane.
   He said Maersk’s market share held steady in the second quarter, in line with the company’s contention that it would not chase, nor surrender, market share this year.
   “Rates are still not acceptable given the investment needed in the business,” Andersen said. “But the increase was enough to turn things profitable.”
   At the A.P. Moller-Maersk Group level, operating profits were $4.1 billion, down 37.4 percent from the corresponding period in 2011. Group revenue in the first half fell 0.8 percent to $29.7 billion.
   Aside from the liner division’s poorer first-half performance relative to 2011, the company’s oil division took an expected hit due to lower production levels.
   The group is now forecasting a slightly better result than in 2011, when it took in $3.4 billion, based on an expected positive result from Maersk Line. At the end of the first quarter, Maersk had forecast an annual loss for its liner business this year.
   APM Terminals, the group’s terminal operating arm, saw first half operating profits rise 49.6 percent to $537 million, and an 8.2 percent rise in revenue to $2.4 billion. Volume at APMT facilities (on an ownership weighted basis) rose 8.6 percent to 17.6 million TEUs.
   Andersen said the group is aiming for APMT and its Maersk Drilling division to each reach $1 billion in net profit annually, joining Maersk Line and Maersk Oil as the company’s four pillar activities.
   He noted the structure of Maersk’s businesses has changed markedly in recent years.
   “We’ve left data processing, we’ve left shipbuilding, we’ve left ferry transportation, we’ve left LNG transportation,” he said.
   As for the container shipping business, Andersen said he sees more discipline among carriers even as demand growth in Europe and North America doesn’t look all that promising.
   “We’ll warn against using capacity utilization as a trigger for rate increases or decreases,” he said. “It’s a mistake we’ve done as well as, I will respectfully say, others in the industry. But it’s not the way forward. It’s normal for an industry to have excess capacity when growth is slow. We just have to live with that and avoid dumping rates. We’re not going to get more total volumes onto the vessels by dumping the rates because our competitors will dump their rates as well.”
   Andersen said Maersk’s aim is to better its rival in operating profit margin by 5 percent.
   “We’ve seen rates increase as a consequence of us behaving maybe less aggressive than we have in the past,” he said. “That’s what we intend to do. What the industry does is outside our influence. In general, the industry understands that you don’t grow the market by cutting rates. When you cut rates, the competitors follow.” – Eric Johnson