Maersk—higher revenues, lower profits
The ocean carrier industry has been consolidating in recent years, organizing into three major alliances, and taking out some capacity. All of this is to shore up freight rates and get them to the point of profitability.
But the second-quarter results reported by Maersk, the world’s largest shipping company, show that those steps are not working—at least so far.
A.P. Moller-Maersk’s earnings dropped by 18 percent in the second quarter of 2018 compared with the same period of 2017, despite seeing a 24 percent increase in revenue. The carrier reported that its earnings, before interest, taxes, depreciation, and amortization (EBTIDA) fell from $1,073 billion in the second quarter of 2017 to $883 million. Maersk’s ocean segment reported an increase in volume of 26 percent—attributable mostly to its 2017 acquisition of Hamburg Süd—but saw its EBITDA fall from $876 million in the second quarter of 2017 to $674 million in 2018.
Why? In large part the dropoff was due to higher fuel costs, lower freight rates, and adverse developments on the foreign exchange markets. It’s well known that the price of oil is higher this year than it was last year. In Maersk’s case, the carrier paid $260 million more for fuel this year than it did in the second quarter of 2017, for a 28-percent increase.
The second-quarter results mean that Maersk’s EBITDA for the first half of 2018 fell from $1.7 billion in 2017 to $1.5 billion this year. Maersk’s August 2017 forecast warned that high costs, low freight rates, and geopolitical uncertainty could adversely affect its earnings.
Soren Skou, CEO of A.P Moller-Maersk said that the company expects revenue of around $40 billion in 2018 and improvements in profitability “driven by lower unit cost and higher freight rates.”
The long-expected hike in freight rates may indeed be coming. Our reporting indicates that the peak shipping season has started early this year, with shippers rushing cargo on board vessels before new tariffs get imposed on international freight. That has caused a tight capacity situation and has driven up rates in the spot market.
That’s good for the ocean carriers, but raises the question: Will that situation continue after this year’s peak shipping season is over?
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