Tuesday 22nd Aug 2017 - Logistics & Supply Chain

Falling freight rates hit profits at Maersk Line

Sales and profits were down significantly at Maersk Line in 2015 as “poor market conditions” hit freight rates, particularly in the second half of the year.

Munkebo Maersk coming alongside at DP     World London GatewayIt made an underlying profit of $1.3bn compared to $2.2bn the previous year. Revenue fell to $23.7 bn in 2015 from $26.9bn the year before.

It said container freight rates declined across all trades except North America, especially in Maersk Line’s key trades to/from Europe and Latin America. And the lower freight rates were only partially offset by lower bunker prices, and cost efficiencies.

To minimise the impact of declining freight rates, Maersk Line accelerated further network rationalisations and operating cost reduction programmes. In response to the weakening demand, Maersk Line also reduced capacity by closing down four services and adjusted the network over the course of 2015.

Global container demand is expected to have grown between 0-1 per cent in 2015 compared to 2014 while the global container fleet grew by almost 8 per cent. The low growth is primarily due to weaker imports into Europe as well as slowdown in emerging economies.

Damco, the AP Møller–Mærsk group’s logistics business, improved from an underlying loss of $225m in 2014 to an underlying profit of $15m in 2015 – despite the fact that revenue was down to $2.7bn from $3.2bn in 2014.

The group said productivity improvements, overhead cost reductions and growth in supply chain management activities were the primary drivers behind the improved result. The reduction in revenue was largely caused by rate of exchange movements.

Margins in both ocean and airfreight segments saw improvements, whereas ocean freight volumes declined over the whole of 2015 and ended 9 per cent below 2014, partly due to de-selection of less-profitable business.

Airfreight volumes fell by 4 per cent over 2015, but grew through the second half of the year. Supply chain management volumes continued to show improvements and ended 5 per cent above 2014.

“Over the past two years, Damco has been through a transformation phase and is now starting to see the planned benefits. Costs have been reduced and productivity has increased with improved bottom-line profitability and cash generation as outcome, bringing Damco to a profitable result for 2015,” the group said.

Maersk Line placed three new building orders for a total of 27 vessels with a total capacity of 367,000 TEU. But further investments have been postponed due to the weak market conditions.

During the first part of 2015, the implementation of the Vessel Sharing Agreement (VSA) with Mediterranean Shipping Company (MSC) on the East-West network was completed successfully with the phase-in of 193 vessels.

The AP Møller–Mærsk group as a whole made a profit from continuing operations of $925m, down from $2.3bn in 2014.

“We are satisfied with the good operational performance across our businesses in 2015,” said group CEO Nils S Andersen.

“Despite the very challenging market conditions in our industries, all business units delivered positive underlying profits and the Maersk Group achieved an underlying result of $3.1bn. Given our expectation that the oil price will remain at a low level for a longer period, we have impaired the value of a number of Maersk Oil’s assets by $2.6bn after tax. We will continue to strengthen the group’s position through strong operational performance and growth investments.”

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