Saturday, November 24, 2012

Container Shipping Giant Invests Elsewhere as Market Fluctuates

No More Money for Box Carriage Envisaged
Shipping News Feature

DENMARK – WORLDWIDE - According to his latest interview Maersk CEO Nils Andersen says the AP Moller Maersk group is to move away from the traditional shipping business with little or no investment in the container freight fleet for the next five years. The daily press seems to consider this as some sort of exclusive from the owner of the world’s largest container carrier whilst industry analysts mock their naivety. The decision to segregate the group into four groups of more or less equal size has been on the cards since the downturn in box cargo three or four years ago, too late to prevent Maersk Line investing heavily in the new series of Triple E vessels.

Twenty (yes twenty) of these, the largest container ships on the planet at four hundred metres long, are scheduled for delivery to Maersk between 2013 and 2017 and when Maersk took up the option of the second tranche of ten vessels in June 2011, the company statement said, ‘Maersk Line expects demand on the Asia to Europe trade to increase 5-8% per year during 2011-2015. By introducing the Triple-E vessels from 2013, Maersk Line will be able to meet the increasing demand as well as maintain its market share,’ contrast the latest pronouncement to this and the company’s enthusiasm when launching the revolutionary ‘Daily Maersk’ service in September 2011 which offers guaranteed delivery schedules and was intended to increase Maersk’s 15% share of global traffic.

Despite that June agreement the signs were already there that the group was cooling toward box carriage with a simultaneous statement confirming that, at that time, there was no intent of taking up that December's final option with the shipyard to order the last ten ships in the series. Further confirmation came when Maersk released its new ‘promotional film for the decade’ in February this year at which time we indicated it seemed to signal a change in priorities. With the box carriers all cutting capacity on the Far Eastern routes and yet another initiative to increase rates across the board it seems Maersk have stated the obvious by saying priority will be given for the foreseeable future to its other divisions. Indeed it will need some skilled, hands on management to make these twenty new vessels, with an overall carrying capacity of 360,000 TEU, a viable operation. The big ships may offer economy of scale, but not when they are running half empty.

Simultaneously, and somewhat unsurprisingly, Maersk Tankers has announced the sale of all eleven of its Handygas tankers to Navigator Gas after announcing its third quarter results earlier this month which saw the sector negatively impact AP Moller Maersk’s results following the delivery of a group profit of $933 million. Maersk Tankers produced a loss of $277 million in the third quarter which the company attributed to higher bunker costs, with vessel impairments of $267 million on some of Maersk Tankers crude and product tanker segments. 

The sale affects around 300 seafarers on the Handygas vessels. It is expected that all seafarers will be transferred to other vessels in the Maersk Tankers fleet or be offered employment by Navigator Gas. Maersk Tankers have said that it is working closely with Navigator Gas to ensure a smooth transition of the vessels and to support all affected employees in the period of change. Speaking about the sale, Hanne B. Sørensen, CEO Maersk Tankers commented:

"Navigator Gas presented us with a great business proposition that supports our aim to simplify and release capital for future investments. Navigator Gas is an experienced and well-renowned player and I am confident that they will deliver the same first-rate service to our customers as we have."

Maersk Tankers have also added that the company will fulfil all existing contractual commitments and the vessels will be delivered individually to Navigator Gas during the period 31 January through the fourth quarter of 2013. David J Butters, Chairman, President and CEO of Navigator:

"We are pleased to be able to acquire Maersk Tankers modern fleet of Handy sized vessels and based on our shared views of maintaining the highest operating standards, we are certain that we can continue to deliver excellent service to all stakeholders within our industry."

Some of Maersk’s divisions performed well in the third quarter with container shipping line and oil and gas sectors exceeding expectations. Maersk Line showed a net operating profit, for the period, of $498 million compared to the third quarter of last year when it produced a loss of $289 million. The company attributed the rise to an average increase in freight rates of 5.7% from $2,860 per FFE (forty foot equivalent unit) in the third quarter of 2011 to $3,022 per FFE, also cited was the increase of volume by 9% to 6.5 million. Group CEO Nils S. Andersen said:

“We delivered a good result for the quarter considering the challenging economic environment. Thanks to our rate initiatives and cost reductions, Maersk Line is back in black figures year to date, and the high oil price supports a satisfactory result for Maersk Oil. We are expanding our terminals network in Latin America, Russia and other growth markets and expect our strategic initiatives to support both our returns and earnings stability as we move forward.”

Maersk Oil profited positively by the settlement of an Algerian tax dispute of $899 million And its net operating profit for the period was $243 million down from the previous year’s $368 million. The company says that the result was negatively impacted by a 23% decline in share of production to 240,000 barrels of oil equivalent per day (boepd) from 2011’s figure of 312,000 boepd, a lower average oil price of $109 as against last years $113 per barrel, as well as a change in the decommissioning relief tax in the UK. An outlay of $268 million completing three exploration/appraisal wells (five wells) and on exploration costs was lower than the equivalent periods $336 million and additionally produced news of the Caporolo discovery off the Angolan coast.

Maersk Drilling’s profit for the period was $87 million down from 2011 Q3 figure of $139 million, the result negatively impacted by delayed start-up and maintenance yard stays. Maersk Drilling has contract coverage of 100% of the available rig days for the remainder of 2012 and 97% for 2013. The divestment of the FPSO Maersk Peregrino resulted in a divestment gain of $177million, recognised in Q3.

Port sector APM Terminals’ profit for the period was $60 million down from last year’s $173 million and the EBITDA margin was at 23.5%. Volume throughput however increased by 4% to 9 million TEU, equivalent to a 2% increase on a like-for-like basis. The company also agreed to acquire a co-controlling 37.5% ownership interest in the publicly listed company Global Ports Investments PLC (Global Ports), a deal which should be ratified later this year.

Nils Andersen confirmed last week that he expects Maersk Line to represent only 25-30% of group capital for the foreseeable future with the other three sectors hoovering up any spare cash for investment. What the Danish boss will not wish to see are the queues of box vessels lined up idle in fjords and inlets worldwide as we witnessed just a couple of years ago despite all the slow steaming, increased efficiency and other measures taken since that time to ensure as stable a market as is possible.

Photo: Maersk HQ.