Maersk Group’s profit dips in Q2 on persistent low freight rate, oil price

Maersk Group, the Danish shipping and offshore energy conglomerate, has delivered a profit of $118 million in the second quarter of 2016, compared to $1.1 billion reported in the same period of 2015, and the profit was negatively influenced by the persistent low container freight rates and low oil price.
The company’s underlying profit stood at $134 million in the second quarter, down from $1.1 billion reported in the same period last year and this was significantly lower for all the company’s businesses except Damco.
Also, the group’s revenue decreased by $1.7 billion or 16 percent compared to the second quarter of 2015, predominantly due to 24 percent lower average container freight rate and 26 percent lower oil price. This was partly offset by 6.9 percent higher container volume and 8.2 percent higher oil entitlement production.
“The result is unsatisfactory. Cost reductions and operational optimizations, however, made a significant contribution to mitigating the impact of the negative market conditions,” says Søren Skou, Maersk Group CEO.
According to him, the group’s expectation for 2016 underlying result being significantly below last year is unchanged given the current negative market conditions.
“Due to its low growth and returns, the group’s board of directors has, during the second quarter, initiated a process to develop and consider the strategic and structural options for Maersk to further increase agility and synergies,” says the quarter two report.
Continuing, “Until the ongoing strategic review is finalised, the group strategy remains unchanged as previously communicated with a strategic direction of targeting profitable growth through business optimisation and value-enhancing acquisitions, cost efficiency programmes and a strong customer focus to maintain top-quartile performance in all business units.”
Maersk Line, the shipping arm of the business reported a loss of $151 million for the period, compared to a profit of $507 million seen in the same quarter of 2015, largely due to challenging market conditions.
Revenue of $5.1 billion was 19 percent lower than in the second quarter of 2015, driven by the decline in average freight rate to 1, 716$/FFE from 2, 261/FFE, partially offset by a 6.9 percent increase in volume to 2, 655k FFE.
The company attributed the freight rate decline to lower bunker prices and weak market conditions, as container freight rate declined across all trades. North America and West Central Asia declined the most, while African, Oceanic and European trades were also notably lower. The decline in North American average rates reflect increased competition, but is also impacted by increased backhaul volumes at lower rates in the second quarter of 2016. West Central Asian, Oceanic and European trades were impacted by market imbalance whereas African trades were mainly impacted by weak demand.
The recognised freight revenue dropped to $4.5 billion in the period from $5.6 billion reported in the same quarter in 2015.
APM Terminals also experienced a decrease in its profit from $161 million to $112 million. Its operating businesses generated a profit of $123 million, compared to $169 million seen in the same period a year earlier.
The report further revealed that APM Terminals’ profits remain under pressure, as terminals in oil dependent markets face declining volumes and commercially challenged terminals in Latin America, North-West Europe and Egypt have not regained business to compensate earlier lost services.

AMAKA ANAGOR