Maersk Gives Shipping Warning
A.P. Moller-Maersk relied on higher freight rates and cost reduction schemes to lift fourth-quarter profit, but modest growth expectations and concerns about pricing has the Danish shipping conglomerate relying increasingly less on mature shipping markets and turning the focus to emerging markets and its oil business.
Maersk is the world's largest container shipping company in terms of revenue, but in recent years has increasingly focused on other endeavours, such as oil production and drilling. While the Maersk Line shipping business represents the bulk of the company's revenue, Maersk Oil -- with operations on several continents -- delivered most of the profits.
The company sees huge long-term potential for its oil business and aims to increase production through the end of the decade as it continues to improve technology and explore in new markets. But 2013 will present an earnings challenge to the oil business as a reduced ownership of assets in Denmark and lower production will hit the bottom line.
Maersk expects negative first-half growth in the European shipping business, and a glut of capacity that makes it difficult for any players in the container shipping business to make money. Maersk returned its shipping line to profitability in 2012 and expects to improve again in 2013.
"It was a hard year for the container market, so we are glad we made profit in this segment," Chief Executive Nils Andersen said during a conference call. In 2013, container shipping growth is seen at a "modest" 4% to 5% amid "bleak" westbound traffic on Asia to Europe routes.
The company warned that "without significant capacity adjustments, the container shipping market is most likely to see a continued downward pressure on freight rates." In 2012, freight rates recovered some of the ground lost in 2011, but lost steam in the fourth quarter as oversupply and sluggish growth in the world's largest consumer markets diminished world trade.
Market observers are questioning the willingness of customers to continue swallowing price hikes.
"The increase in freight rates was accepted by customers when container lines made losses because they could see it was necessary," Nykredit analyst Ricky Steen Rasmussen said Friday. "But I doubt the lines can get through the rise they wish now that they are profitable."
Mr. Rasmussen estimates companies like Maersk "will only be able to increase prices half as much as they wish."
Mr. Andersen has been making bets recently outside of the mature shipping markets by investing in ports and infrastructure located in Asia, Latin America and Africa. The company is also introducing newer, more fuel-efficient ships to its fleets to reduce costs in tandem with charging higher prices. Maersk in 2011 ordered twenty of these so called Triple-E vessels, the first is to be delivered in July.
In September, Maersk introduced a round of "slow-steaming" measures aimed at reducing ship speeds to meet sluggish demand. Mr. Anderssen said higher prices "helped us a bit" and rates did increase 2% in 2012, but the company's emphasis is on cost reduction and becoming "more and more competitive."
The company posted a net profit of 5.54 billion Danish kroner ($979.5 million) during the fourth quarter compared with 1.62 billion kroner in the same period a year ago. The biggest contributor was its container segment Maersk Line which turned a loss of 3.18 billion kroner into a profit of 1.94 billion kroner.
Analysts had expected a net profit of 4.51 billion kroner. Full-year net profit rose 42% to 21.7 billion kroner from 15.2 billion kroner a year earlier.
Revenue increased nearly 3% during the fourth quarter to 84.8 billion kroner, compared with 82.5 billion kroner the year before. Analysts had forecast 84.51 billion kroner for the quarter.