Thursday, November 10, 2011

Container Shipping, Freight and Logistics Sectors Show Mixed Financial Results

Q3 Figures Out for Ocean Shipping, Rail, Air and Road Haulage
Shipping News Feature

WORLDWIDE – More third quarter results out recently show the confused state of the global freight and logistics market. Maersk, with the biggest container shipping fleet in the world and a sizeable share of the tanker market admit to poor results despite healthy tonnage increases, mainly due to the collapse of freight rates in both sectors.

AP Moller Maersk as a group cover a wide range of logistics activities but its current financial statistics show a 78% drop ($371 million against $1,671 million) in profits for Q3 against last year with a first nine month drop of 26% (£3.1 billion as opposed to $4.2 billion). Despite increasing box traffic by 16% in the quarter to 2.1 million forty foot equivalent units (FFE) this was not enough to offset the impact from declining freight rates (down 12% on average) and a one year fuel price hike of almost 50% leading to a loss for the period of $297m (previous profit $1,028m). Despite this Maersk has launched their daily guaranteed arrival Asia to Europe service in an attempt to corner that market, driven no doubt by their commitment to increasing the size of their fleet, a strategy devised in more bountiful times.

Maersk Tankers continued to face difficult market conditions and posted a loss of $37m and, with overcapacity in crude and product carrying activity likely to continue, the future is not bright. However Maersk point out any gas carrying capacity is positively influenced by limited new supply. Maersk FPSO’s and Maersk LNG had full vessel utilization during Q3 and posted a profit of $59 million but last month an agreement was signed to sell Maersk LNG for $1.4bn on a cash and debt free basis yet the company says this will not have significant impact on the Group's profit.

Maersk has the advantage that its commitment to the energy sector may ameliorate the situation and Maersk Oil has a 20% share in the Avaldsnes discovery in Norway, where the operator raised the estimates of recoverable resources in September 2011, increasing Maersk Oil’s share from 20-80 million barrels to 160-360 million barrels of oil equivalents.

Whilst Maersk’s salvage company, Svitzer, showed a $1 million profit rise to $34 million ‘other businesses’ which presumably includes the logistics subsidiary Damco, dropped to $42.4 million from $181.5 million but Maersk claim income from other businesses is expected to be above 2010 excluding divestment gains.

Maersk’s shipping results and forecasts, like COSCO and NOL before them, mirror a miserable outlook for the next few years with container carrying capacity expected to exceed demand by a considerable margin. Current new build orders are said to equate to 30% of the current merchant marine fleet in terms of box capacity at a time when vessels are already carrying short loads and slow steaming to conserve fuel thus increasing overall capacity at sea.

Meanwhile air freight carrier Air France-KLM reports Q3 cargo levels down year on year just over 2% at a time when the group had extra capacity available set against 2010, revenue levels also suffered, down 1.7% to €773 milion with an ‘operating result’ down from €7 million in September 2010 to minus €37 million a year later. Despite negative currency fluctuations the group overall recorded increased revenue’s in Q3 to €6.79 billion supported by strong passenger growth.

In the postal sector Deutsche Post AG, Europe’s largest postal service, gained the most in 18 months in Frankfurt trading as growth in Asian express shipments and German parcel volume prompted the company to raise its full-year forecast. Deutsche Post stock immediately gained up to 7.1% to €11.45 before settling back. The Bonn-based company said that earnings before interest and tax in 2011 will total more than €2.4 billion exceeding the top end of its earlier forecast range.

Across the pond US rail freight seems to be on the up with American Railcar Industries Incorporated which deals in bulk carrying wagons (hoppers and tanks) topping a buoyant set of results for the sector. Revenue at the company showed a 94% jump in Q3 to $126 million. Analysts say the jump in stocks in the sector is fuelled by the cranking up of oil and natural gas production. Besides the obvious need to carry the product ‘fracking’is very much the new black in the industry, the process whereby fissures are opened in the earth’s crust hydraulically to release sub surface energy sources.

The system demands the supply of huge quantities of sand, typical of ore products which are only financially viable if delivered by rail. The increased demand has led to full order books for the wagon suppliers and a jump in revenue for the train and track companies and, with all suppliers running at capacity, the price of the rail cars will be at a premium as industry experts predict 50,000 extra bulk carrying wagons will be needed by 2015. Whilst traditional markets like agriculture and chemicals contract, scrap metals and ore shipments continue to grow with the new energy based industry to more than fill the gap.

Meanwhile in the world of US trucking Old Dominion Freight Lines (ODFL) is a typical American LTL (less than truck load) freight consolidator and haulage company with 90% of the group’s income emanating from these operations. Q3 revenues rose from $396,000 to $494,000 year on year with net income rising to 7.8% (against 6.2%) and income for the first 9 months up to 7.1% compared with 5% in 2010. Although fuel and other operating expenses rose, ODFL appear to have cut costs across the board including everything from insurance and office expenses to communications and wages. Full details can be seen HERE.

Photo: The practice of recovering oil and gas reserves by ‘Fracking’ has met with stiff opposition from several protest groups worldwide.