Maersk warns of 20-25% slump in volumes

Maersk warns of 20-25% slump in volumes
Maersk expects global container demand to decline this year

Despite managing to grow profitability during the first quarter of 2020, Maersk expects volumes in Q2 to decrease across all businesses possibly by 20-25%, as global demand plummets due to the COVID-19 pandemic.

The world’s largest container shipping line blanked more than 90 sailings during Q1, leading to a decline of 3.5% in its average deployed capacity.

Søren Skou, CEO of A.P. Moller – Maersk, said: “Looking into Q2 2020, visibility remains low as a result of the COVID-19 pandemic.

“2020 is a challenging year, but as we proactively respond to lower demands and show progress in our transformation and financial performance, we are strongly positioned to weather the storm.

Despite the initial effects of the COVID-19 pandemic, Maersk managed to increase its operating earnings by 23% in the first quarter of 2020.

Earnings before interest, tax, depreciation and amortisation (EBITDA) improved 23% to US$1.5bn compared to Q1 last year and the EBITDA margin increased to 15.9%.

Revenue increased slightly to US$9.6bn, despite lower volumes and mainly driven by its ocean business, in which EBITDA increased by 25% to US$1.2bn.

The strong ocean performance was driven by compensating for the increase in fuel prices following the implementation of IMO 2020, including a positive result from the self-supply bunker strategy and adjustments in capacity mitigating the lower volumes related to COVID-19.

Unit cost at fixed bunker decreased by 2.3%, mainly due to optimisation in capacity, which offset the lower volumes.

Skou added: “The strong results were made during a quarter with sharp fuel cost increases derived from the industry’s switch to low-sulphur fuel and on the backdrop of a contraction in global trade due to lockdowns in most regions.”

While earnings continued to grow, the product offerings kept expanding in line with Maersk’s strategy of supporting its customers’ end-to-end supply chains.

The acquisition of Performance Team, a US-based warehouse and distribution company, and a cold store construction in St Petersburg, Russia were completed during Q1.

Meanwhile, the usage of digital services increased significantly as customers benefitted from the convenience of managing their supply chains remotely, with the Maersk app experiencing an 86% increase in usage.

Skou pointed out: “The transformation of A.P. Moller – Maersk from a diversified conglomerate to becoming a focused, integrated and digitised global logistics company continues to be validated also in this quarter, as we are serving our customers, connecting and digitising their supply chains, while also growing earnings and free cash flow in difficult circumstances.”

The company’s Infrastructure segment, which covers Terminals and Towage, and Logistics and Services, but excluding freight forwarding, reported a decrease in revenue to US$2.1bn compared to US$2.3bn in the same period last year due to lower revenue following COVID-19.

Logistics and Services excluding the freight forwarding business, improved EBITDA to US$69m from US$49m.

Gross capital expenditures excluding acquisitions (CAPEX) was at US$310m compared to US$778m in Q1 2019, reflecting “ongoing strong capital discipline”.

The accumulated guidance on CAPEX for 2020-2021 on US$3.0 – 4.0bn is unchanged, with steps being taken to reduce CAPEX in 2020.