Meanwhile, the A.P. Møller – Maersk conglomerate, which includes both Maersk Line and APM Terminals, reported second quarter profits of $118 million, 89 percent below the $1.09 billion in the second quarter of 2015.
The A.P. Møller – Maersk conglomerate, which includes Maersk Line and APM Terminals (APMT), reported second quarter profits of $118 million, 89 percent below the $1.09 billion in the second quarter of 2015.
The company attributed the decline to low growth and the falling prices in nearly all of its markets.
Soren Skou, chief executive officer, said the loss was “clearly not a satisfactory result” for a company the size of Maersk Group and he attributed it to lower oil prices, freight rates, charter rates and terminal rates, all of which resulted in the 16 percent drop in revenues. On the flip side, he said the company has done well in reducing costs. In addition, Skou added, “despite the rough seas we are in and facing, we continue to be in a very strong financial position.”
Skou also said that despite the poor result, Maersk’s various operating companies are performing well in the industries in which they operate. The company said that seven of the eight business units are “top-quartile performers.”
Meanwhile, earnings before interest and tax (EBIT) for the quarter totaled $656 million compared with an EBIT of $1.54 billion in the second quarter of 2015.
In addition to container shipping, terminal operations and logistics, the Maersk Group is heavily involved in the oil and gas industry. Revenues for the conglomerate reached $8.86 billion for the second quarter of this year, 16 percent below the $10.53 billion it earned in the second quarter of 2015.
In June, Skou replaced Nils Andersen as chief executive officer of Maersk Group, while remaining CEO of Maersk Line as well, and the company said it would “investigate the strategic and structural options to further increase agility and synergies.” Skou reiterated today Maersk’s board of directors will report on the review before the end of the current quarter.
Lloyd’s List reported that Skou expects to step down as CEO of Maersk Line when that review is completed, while remaining CEO of the group. When asked to confirm that report, a company spokesman would only say “Søren Skou will only hold two CEO positions in the period in which he leads the strategic review. An update on the future structure and strategy will be communicated before the end of the third quarter in 2016.”
The company said its container shipping unit Maersk Line had a second quarter net operating loss after tax of $151 million compared with net operating profits of $507 million in the second quarter of 2015. EBIT fell to a loss of $123 million for the quarter compared to an EBIT gain of $530 million in the second quarter of 2015.
Revenues totaled $5.06 billion, a 19 percent decline from the $6.26 billion in the second quarter of 2015.
Maersk attributed the decline to a 24 percent drop in average freight rates to $1,716 per FEU when compared to rates a year earlier, partially offset by a 6.9 percent increase in volumes to 2.66 million FEUs.
Maersk said the decline in freight rates reflected both lower fuel prices and weak market conditions.
“Container freight rates declined across all trades,” Maersk said. “North America and West Central Asia declined the most but African, Oceanic and European trades were also notably lower. The decline in North American average rates reflect increased competition, but is also impacted by increased backhaul volumes at lower rates in Q2 2016. West Central Asian, Oceanic and European trades were impacted by market imbalance whereas African trades were mainly impacted by weak demand.”
Maersk Line said it “continued to deliver on strategic objectives in Q2, with record low unit costs and a volume growth at least in line with the market.”
In addition, Maersk Line said it expects underlying profits for 2016 to be less than the $1.3 billion it earned last year. However, the company still expects global demand for seaborne containers to increase by 1-3 percent. Maersk Line aims to grow at least with the market to defend its market leading position.
“In our industry, that is quite a positive development. Our network is almost as full as it can be. We are operating at a very high utilization rate in the headhaul trades, but also on roundtrip utilization is pretty high, as high as it has ever been,” said Skou. “Part of the growth we have had has been in backhaul trade.”
Maersk said unit cost in the second quarter of this year was at a record low of $1,911 per FEU, $335 or 15 percent lower than it was in the second quarter of 2015.
“We continue to driver cost out of the network,” said Skou, who also explained how the company is in the middle of creating a “3.0” version of the 2M network it operates with MSC on the major East-West trades and will also optimize its North South services.
The company is reducing terminal costs, Skou said.
“That’s not great” for Maersk’s sister company APMT he noted, but he said the terminal industry is being impacted by lower growth and excess capacity, and that means Maersk has had opportunities to reduce terminal costs, which he said is Maersk Line’s single largest cost item.
He noted while spot freight rates have increased since March, this has not spilled over into the company’s results because contract rates were set at lower levels this year.
Rates are benefiting from slightly higher market growth and “more disciplined capacity deployment across the industry.”
APMT posted operating profits of $112 million during the quarter compared to $161 million in the second quarter of 2015. EBIT fell to $141 million compared to $185 million in the second quarter of last year. Revenues totaled $1.06 billion in the second quarter this year for the terminal unit compared with $1.03 billion in the second quarter of 2015.
In March 2016, the terminal operator acquired eight terminals from Grup Marítim TCB.
“Commercial performance across the TCB portfolio has continuously strengthened since they were added,” the company said.
APMT noted an investigation of the Terminal de Contenedores Quetzal (TCQ) concession in Guatemala is still ongoing and concerns alleged irregularities dating back to before it acquired the terminal. “APM Terminals is cooperating fully with the local authorities and expect to conclude an agreement for TCQ in the coming months,” the company said.
“For APM Terminals profits remain under pressure, as terminals in oil dependent markets face declining volumes and commercially challenged terminals in Latin America, North-West Europe and Egypt have not regained business to compensate earlier lost services,” the company added.