Moody's downgrades Maersk's credit rating amid fears for box shipping sector
Maersk has had its credit rating cut by ratings agency Moody’s to one grade above ...
Maersk Line will cull unprofitable services, cut capacity and reduce feedering in an urgent bid to stem losses caused by a toxic mix of low freight rates and soaring fuel costs.
The refocused Maersk Group recorded an net loss of $239m in the first quarter across its Ocean, Logistics & Services, Terminals & Towage and Manufacturing & Others business divisions.
Chief executive Soren Skou said the result was “unsatisfactory” and that “a number of short-term initiatives are being implemented to improve profitability”.
For Maersk Line, chief operating officer Soren Toft added: “We have put a number of plans in place. We will implement a number of capacity reductions over the next two quarters on trades that are not yielding the desired results.”
He advised that the carrier would also reduce the amount of feedering and, instead, endeavour to channel cargo to directly served ports, while further cost-saving would involve network optimisation and empty container positioning.
Mr Toft confirmed Maersk Line had no plans to order any new ships “for at least the next 12 months”, and said capacity could be reduced in the next two quarters due to the emergency rationalisation measures.
Q1 revenue for Ocean, which comprises Maersk Line, Hamburg Süd, Sealand, MCC and Seago, along with APM Terminals’ transhipment hubs, was up 38% on the same period of the previous year, to $6.8bn, although excluding Hamburg Süd the growth was just 10%.
Liftings jumped 24% to 6.4m teu, but excluding Hamburg Süd, the volume growth was a modest 2.2%, compared with a market par of 3-4%.
Average freight rate per feu was up 7%, to $1,832, boosted by a 9% uplift in north-south rates and a 21% hike on intra-regional trades, but negated by a 0.9% decrease in east-west rates.
But unit costs were up 12%, driven by higher fuel costs and adverse rates of exchange.
“Hamburg Süd brings into the mix a business with higher rates, but also higher costs to serve,” said chief commercial officer Vincent Clerc. The average cost per tonne paid by Maersk for its bunker fuel was 19% higher at $382, with total consumption at 3.1m tonnes, up 28% due to the inclusion of Hamburg Süd’s fleet.
Meanwhile, for Terminals & Towage’s gateway terminals – separate from Ocean’s hub terminals – APMT won 13 new contracts in the quarter but lost four, producing a 15.6% increase in throughput, to 4m teu, again partly attributed to the inclusion of Hamburg Süd.
Logistics & Services, which includes forwarder Damco, saw “strong” growth in the quarter, but continued investments in digital solutions and return-on-equity (ROE) losses dented profits.
Investor analysts expressed concern that fuel increases were not being recovered from shippers and Mr Clerc admitted that “it had been difficult to pass on the full amount to contract customers”. He also conceded that, in the short-term or spot market, it had been “especially difficult in some areas where we have faced a strong capacity injection”.
Denying that the business was “out of control” and that its executives were “distracted” by the restructuring, Mr Skou said the company was “more disciplined on capex than in the past”, adding “we believe the year will improve”, citing better supply-demand predictions for the second half.
However, analysts remain unconvinced that the group can achieve its guidance of an underlying profit that beats the $356m recorded in 2017. The share price fell more than 9% after the results were released this morning.