News / Damco the surprising star performer as Maersk profits drop almost 50% in Q3

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After widely advertising that the twin effects of low oil prices and desperately low container freight rates would hit earnings, Maersk Group today reported a third-quarter underlying profit of $778m, a drop of almost 50% on the last year’s profit of $1.5bn.

It said it expected to make a full-year group profit of $3.4bn.

Its flagship Maersk Line unit recorded an underlying profit of $243m compared with $659m in the same period last year as the industry suffered from “oversupply and decreased imports into Europe, where freight rates declined to new historical lows”.

Its revenue for the period was $6bn, 14.9% lower than Q3 2014, with average freight rates dropping 19.3% to $2,163 per feu, while volumes grew by 1.1% to 4.8m teu.

Group chief executive Nils Andersen defended the results and pointed to the economic headwinds affecting the industry as a whole.

“The fact is we are going to make $3.4bn profit in a year when the outside forces are really tough – we have to look for ways to improve but compared to the outside environment it’s a fair result,” he said.

The company predicted Maersk Line would make a full-year profit of $1.6bn on volume growth of 1-3%, and had accordingly scaled back on its vessel newbuilding programme after notifying shipyards that it would not exercise options for six 19,630 teu ships while postponing the decision on options for eight 14,000 teu utility vessels.

“We are stopping investment not because we are scared of not making enough money, or because we haven’t got enough to invest, but because we are re-evaluating what the long-term trend is going to be and we want to grow in line with the market,” Mr Andersen said today, adding that the money still had substantial funds to invest should the opportunities present themselves.

“We are making sure we are competitive – all our business units are profitable; we have strengthened our balance sheet; we have brought down our debt and we have money to go out and invest in distressed assets or assets that are otherwise interesting to our core businesses.

“When we came out with the half-year results we said we would defend our market position, and that means there would be periods when we would try to take a bit of market share, but we also want to be very specific that we are not going to order vessels that don’t meet our growth position, so we will grow in a well-planned manner, offering better service to our customers and we will order capacity to meet that – we will not order capacity to grow vastly ahead of the market based on price competition,” he said.

Its box handling business, APM Terminals, delivered an underlying profit of $175, compared with $201m in the third quarter of 2014, as volumes decreased 8.7%year-on-year to 8.9m teu compared with 9.7m teu, although this was partly due to the sale of its stake in facilities in Virginia, Charleston, Jacksonville, Houston and the Terminal Porte Océane facility in Le Havre.

Excluding these one-offs, its like-for-like volumes dropped by 4.4% – in the context of a market growth of approximately by 1.8% in in the period, according to Drewry – as a result of lower volumes in oil exporting nations such as Russia and Angola.

However, one silver lining for the group is the turnaround in fortunes at its logistics arm, Damco, which made a $20m profit after posting a loss of $68m last year, and despite the fact that revenues declined 15% to $719m, largely due to exchange rate movements.

Both its supply chain management product and air freight volumes grew by 5%, while ocean freight volumes fell by 10%, which it attributed partly to the “deselection of non-profitable business”.

“Ocean freight and supply chain management margins saw improvements. Continued productivity improvements and growth in supply chain management and warehousing activities improved the result,” the company said, adding that last year it had also been hit by significant one-off costs and its cash flow from operating activities was $53m compared to a negative $ 59m) due to the improved operational result and reduced working capital.