Maersk posts a quarterly loss of US$599 million despite 18pc volume rise

DENMARK's AP Moller-Maersk Group has posted its first quarter results, which its container shipping unit Maersk Line suffered US$599 million year-on-year loss despite a 18 per cent growth in volumes.

The carrier said the average freight rate fell nine per cent compared to the same period last year.

Overall, the group delivered a profit of $1.2 billion, drawn on revenues of $14.32 billion, down one per cent year on year. Compared to the same quarter of 2011, it experienced almost zero growth in the first quarter. Excluding divestment gains and one-off tax income from the settlement of an Algerian tax dispute, the group recorded zero profit in the first three months, against a profit of $1.1 billion in the same period of 2011.

Group CEO Nils Andersen said the company is "not satisfied" with its first quarter performance, adding "earnings in shipping were weak due to the continued loss-making rates in the container and tanker markets. However, our efforts to increase container rates are paying off and we will continue our initiatives to improve rates throughout the year.

"We will also maintain a high level of costs for oil exploration and development of discoveries for production. We are confident that these investments will enable us to stop the decline in our oil production and then return to growth towards our target of 400,000 barrels per day."

Looking ahead, Maersk expects the group's year-end 2012 earnings will be slightly lower than the $3.4 billion recorded in 2011. Cash flow used for capital expenditure is expected to remain the same as in 2011.

For container shipping, Maersk Line said it "expects a negative up to neutral result in 2012, based on the assumption that the rate restoration that has taken place since March 2012 will continue."

The Maersk Line projects the global demand for seaborne containers will increase by four to six per cent in 2012, with lower increases on the Asia-Europe trades, but higher increases on the north-south trades.

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Maersk to cut Asia-Europe capacity by 9%

Maersk Line, the world's biggest container shipping company, will cut nine percent of its vessel capacity in the Asia-Europe trade in a bid to combat low freight rates clipped by oversupply, reported Reuters.

Maersk Line, a unit of Danish shipping and oil group A P Moller-Maersk, said the capacity reduction would be facilitated by a vessel-sharing agreement with French container shipping line CMA CGM.

"Oversupply of container vessels operating on the Asia-Europe trade lane has pushed Maersk Line's container freight rates to unsustainably low levels," the company said.

Analysts said the capacity cut, which was the first major move by Maersk Line's new chief executive Soren Skou, could help the company push through ambitious rate increases in March.

Sydbank senior analyst Jacob Pedersen said it was a significant break with Maersk Line's strategy throughout 2011 when it accepted lower rates in anticipation that rivals would withdraw capacity or go under.

"That has not happened yet to a large extent, but new alliances and therefore fewer players in the Asia-Europe trade nevertheless underpin hope for more balanced competition going forward," Pedersen said.

Pedersen said recently announced rate increases of US$700-$900 per 20-foot container on Asia-Europe routes, together with capacity reductions, could significantly improve the shipping industry's earning potential for 2012.

Maersk Line, which is expected to post losses for 2011 when A Moller-Maersk presents annual results on February 27, threw down a challenge to rivals last year by introducing a more streamlined and frequent service without a surcharge on its key Asia-Europe routes.

That move prompted some other boxship companies, including CMA CGM and Switzerland-based Mediterranean Shipping Co (MSC), to form new alliances to counteract Maersk.

"The reverse side of the coin is that deeply needed consolidation will now be postponed indefinitely to the detriment of the sector's – and Maersk Line's – long-term value creation," Pedersen said.

Maersk referred to an Alphaliner forecast that Europe to Far East container traffic growth would slow to 1.5 percent in 2012 from an estimated 2.8 percent in 2011, due to a weakening economic outlook in Europe. "The industry container vessel fleet, by contrast, is set to grow by 8.3 percent in 2012."

Maersk Line said it would make the adjustment without giving up any market share gained over the past two years. "We will defend our market share position at any cost, while focusing on growing with the market and restoring profitability," Skou said.

Maersk Line said the cooperation with privately owned CMA CGM would help it cut the cost of serving West Mediterranean markets, enable it to deploy its own vessels to areas where they were most needed and pursue further slow-steaming, or sailing at lower-than-normal speeds. Maersk Line said it would also consider additional steps to reduce capacity, including redelivery of time charter tonnage, lay-ups of vessels and slow-steaming.

Maersk reiterated that it would not exercise an option for the last 10 giant Triple-E class vessels out of a total of 30 it had initially contracted last year to Daewoo Shipbuilding & Marine Engineering of Korea.

source:cargonewsasia.com