After a half-year defined by the low oil price, falling freight rates and intense price competition, Maersk Line has adjusted its strategy, hoping to defend its market position.
Following a loss of market share in the first quarter of 2015, the carrier has changed its target from “growing in line with the market to growing at least with the market to defend its market leading position”.
Half-year volumes for the shipping line were 1.1% higher, and the market share it lost in Q1 was regained in Q2, with volumes increasing by 3.7% ahead of estimated global market growth of 1-2%, which, in itself, is slower than expected.
Global demand for seaborne container transportation has been revised to an expected increase by 2-4% versus 3-5% previously.
The overall group’s underlying profits fell from US$1.19bn to US$1.10bn in the second quarter of this year, with its shipping line, oil and port terminal segments all seeing declines.
However, Maersk Group CEO, Nils Andersen described Maersk Line’s results as a “solid performance”, bearing in mind that rates fell by 14.1% to US$2,261, largely attributable to bunker cost savings being passed on.
Stating that the Danish line’s network capacity had grown by 11% while its volumes were only 3.7% up, he added: “It’s fair to assume that some adjustment in capacity will also take place here and the situation should normalise at some time going forward. It is a slow growing market and we need to take the proper capacity decisions to adjust to that.”
Andersen also admitted that the company had made errors in its forecasts, saying: “We’ve over-estimated the market growth and that is affecting us now. In the past, what we’ve done really well is predicting approximately where the market growth would be and being good at adapting our capacity and we’ll try to do the same going forward.”
Andersen said that APM Terminals’ slump, highlighted by a 25% fall in underlying profit to US$159m, was “more than could be expected”.
The terminal-operating subsidiary’s forecast has been revised downwards “significantly below 2014” due to the weak business climate in oil dependent markets and the strength of the US dollar against local currencies.
In the second quarter of the year, APM Terminals handled 9.2m teu in container volumes, 6% down on the equivalent period last year, due to divestments and reduced import volumes in West Africa and Russia.
Maersk Line reported half-year profits of US$1.2bn, a 22% improvement on the same period last year, achieved through lower costs. Revenue was US$12.5bn, 6.8% lower than H1 2014 as global container demand remained weak.
Søren Skou, CEO of Maersk Line, said: “Our strong financial performance is the result of our cost leadership strategy. It has proven to be the right strategy, especially at a time with very tough competition, falling rates and stagnating demand.”
“Driven by our low cost position, we continue to lead the industry on profit and margins. I am convinced we can do more and in the coming years grow our business at least in line with the market,” he added.
Andersen stated that although Maersk Line’s costs fell 9.9%, most of this was caused by low bunker prices and the US dollar’s appreciation, adding: “We want to see real underlying cost reductions.”
In June the shipping line signed a contract for 11 second generation Triple-E vessels with a capacity of 19,630 teu intended to replace smaller, less efficient vessels in the Asia-Europe trade. They will be delivered between 2017 and 2018. The contract, valued at US$1.7bn, includes an option for six further vessels.
In the following month, Maersk signed a US$1.1bn contract for nine 14,000 teu vessels to be delivered in 2017, again with an option for up to eight additional vessels.
Regarding the Chinese central bank’s recent devaluation of the renminbi (RMB), Andersen noted: “The most important thing is the long term statement that lies behind this. The government in China views export as a fundamental pillar in the Chinese economy going forward, which is fundamentally good for us.”
He acknowledged that any short-term impact would be difficult to predict, but added: “If we can get some help on Asia-Europe volume development, it shall be more than welcome.”