Maersk wary of impact of coronavirus on 2020 volumes

Maersk wary of impact of coronavirus on 2020 volumes
The outbreak has led to delays in the opening of Chinese shipping yards following Chinese New Year

The COVID-19 virus could dampen 2020 volumes due to the extension of the Chinese New Year holidays and emergency measures to curb the spread of the virus, A.P. Moller-Maersk has reported.

The outbreak of the virus has introduced additional challenges and risks to Maersk’s operations and the shipping company has already undertaken specific measures to ensure the health and safety of its employees globally.

In its 2019 annual report, Maersk stated: “Fear of the virus and the efforts to prevent its spread will see an increasing pressure on the supply-demand balance.

“It is still early days to measure the overall impact, however, the weekly container vessels at key Chinese ports were significantly down compared to last year during the last weeks of January and the first weeks of February.”

Freight rates are expected to decrease due to dropping demand for containerised goods transport and the outbreak has led to delays in opening of Chinese shipping yards following the Chinese New Year holidays.

This has delayed planned yard works, including some planned installations of scrubbers on Maersk vessels.

The outlook and guidance for 2020 is subject to significant uncertainties and impacted by the COVID-19 virus as it has lowered visibility on what to expect in 2020.

However, for the overall year of 2019, Maersk improved earnings and free cash flow despite weaker market conditions and global container growth of only 1.4% year-on-year.

The company’s earnings before interest, tax, depreciation and amortisation (EBITDA) improved 14% to US%5.6bn compared to 2018 and its EBITDA margin increased to 14.7%.

Revenue decreased slightly to US$38.9bn in 2019 from US$39.3bn while free cash flow was US$6.8bn (up from US$5.1bn in 2018) and CAPEX declined by US$1.2bn to US$2bn in 2019.

Søren Skou, CEO of A.P. Moller-Maersk, said: “Despite weaker market conditions, A.P. Moller-Maersk was able to improve profitability and cash flow. Our cash return was healthy, and we continued the reduction of net interest-bearing debt, leading to a further deleveraging of US$3.3bn over the year.

“It gives us a solid starting point for 2020 to further expand our end-to-end offering within container logistics while at the same time managing the market challenges that are obviously out there.”

In Ocean, EBITDA increased 15% to US$4.4bn and the EBITDA margin of 15.3% increased by two percentage points, driven by a lower cost base.

Revenue was US$28.4bn with a small decrease in volumes to 13.3m forty-foot equivalent units (FFE).

Unit cost at fixed bunker decreased by 1.7%, mainly due to improvements in capacity management and foreign exchange rate developments.

For logistics & services the EBITDA increased 24% to US$238m with an EBITDA margin of 4% while revenue decreased slightly to US$6bn from US$6.1bn, driven by a decrease in sea and air freight forwarding activity which was only partly offset by an increase in warehousing and distribution.

Terminals & Towage reported an 11% increase in EBITDA to US$1.1bn with a margin of 28.4% and revenue increased by 3.2% to US$3.9bn.

In gateway terminals EBITDA increased by 17% to US$902m, with an increase of 28% in the EBITDA margin and a 4.1% increase in revenue to US$3.2bn.

This positive development was driven by a ramp-up of Maersk’s new terminal in Moin, Costa Rica, as well as higher volumes, higher storage income and reduction in selling, general & administrative expense.

The company’s strategic focus of 2019 was to improve upon the financial performance on ocean and to create a better customer experience through increased reliability, improved customer experience and introduction of online services and products.

Maersk also took further steps in the integration of the business on a structural level and how it goes to market.

Skou said: “While we still need to improve returns, we delivered solid progress in our financial performance in 2019 while progressing the business transformation, in spite of weak trade growth, ongoing trade tensions and geopolitical uncertainty in many markets.”

Maersk expects an EBITDA of around US$5.5bn, before restructuring and integration costs, for 2020.

The guidance for this year is subject to uncertaintes related to the implementation of IMO 2020 and the impact of bunker fuel prices and freight rates combined with the weaker macroeconomic conditions and other external factors.