Monday, November 9, 2015

MAERSK DECREES 4TH QUARTER PROFIT REQUIREMENT

How much costs can be cut against background of poor rates and weak demand?

Picture: Stephen Waller
“Clearly less than satisfactory”, said Maersk Line chief executive Soren Skou today, reflecting on the carrier’s performance in the third quarter.
Revenue plunged by over $1bn compared with the same period of 2014, and its net profit collapsed by 61% to $264m versus $685m the year before.
Now group CEO Nils Andersen has decreed the container line unit must make $150m profit in the final quarter.
Mr Skou said: “We will accelerate efforts to drive out cost and we will reduce capacity to increase network utilisation. We have a cost-effective network and a strong competitive position. We are determined to keep it that way.”
A key part of the “accelerated” $250m annual cost reduction drive will be a 15% cull of its land-based staff, reducing its global organisation “by at least 4,000 positions by the end of 2017”.
Mr Andersen, speaking during the third-quarter results presentation on Friday, said the carrier’s shared service centres would probably account for many through increased levels of natural wastage.
The dramatic about-turn in the container line’s results obliged the conglomerate to issue a profit warning on October 23 and to slash its outlook for Maersk Line for 2015 by $600m to $1.6bn.
Mr Andersen said container freight rates had dropped “quite significantly in the second half of the third quarter”, with the only silver lining being continually low bunker costs.
“I think the low growth has taken everybody by surprise,” he said. “It was below what we expected and definitely did not meet our hopes for the peak season.”
Nevertheless, Maersk Line actually increased its throughput by 1.1% in the period, to 2.427m teu, against a contracting market, and with year-on-year capacity growth of 6% its average freight rate took a hit and was 19% lower at $2,163 per 40ft.
“Rates determine our profitability much more than volume,” said Mr Andersen, who declined to comment on the percentage of the container line’s Asia-Europe liftings being sourced from the spot market.
Maersk Line is in the middle of contract negotiations with its Asia-Europe customers, he explained.
“We have to see where it goes”, he said, “we will know when we see how many contracts we close and at what level, and that goes for both the European and US trades, which are generally closed around May.”
Meanwhile, Friday’s Shanghai Containerized Freight Index (SCFI) offered little comfort: its Shanghai-North Europe component gave up a third of its general rate increase gain of the previous week and shed $314 per teu to $674 per teu, confirming Maersk’s belief that there will be “no market recovery within 2015”.
Maersk added today that it expected the market to “remain under pressure due to continued overcapacity”.
In addition to the closure of four east-west services already announced, Maersk Line has said it also plans to cancel a further 35 voyages before the end of the year.
Mr Andersen said the flagship carrier needed to make a further $150m profit in the final quarter in order to meet the group’s revised guidance level.