Maersk Line Repeatedly Shows Container Shipping is Profitable

Despite challenges in the container shipping industry, Maersk Line saw continued improvement over its Q4 2015 performance, with a Q1 2016 profit of US$37 million. The Maersk Group as a whole delivered a profit of $224 million ($1.6 billion)

Given where the markets are, it’s a good set of results, without bragging. – Chief Executive, AP Møller-Maersk

For most industry watchers, Maersk Line’s performance is regarded as an important indication of the state of the container shipping sector, and certainly provides valuable insight into the performance of the world economy and global trade.

The volume handled by the container shipping leader has grown seven percent year-over-year to 2.36 million FEUs. This increase was complemented by a 10 percent decrease in total operating costs and a 48 percent decrease in the price of fuel, which partnered to lower the average unit cost of transporting a container by almost 5 percent to US$2,060.

We improved our financial performance compared to the fourth quarter in 2015 despite continued drop in prices. In a market with record low freight rates, we won market share, drove down cost and continued to deliver positive free cash flow, enabling us to fund our own growth. – CEO, Maersk Line

The reductions to capacity made in the last half of 2015 have consistently increased utilisation, especially on its container shipping services from Asia to Europe, and are contributing to the company’s improved performance.

maersk line high utilization of vessels

Our network is now operating with very high utilisation and our vessels are full in the Asia-Europe trade. – CEO, Maersk Line

The worldwide demand for maritime shipping container transport is still expected to increase by one to three percent. To defend its market leading position, Maersk Line says that it intends to grow at least with the market and, like many other investors, profit from investments in global trade.

We expect the market to pick up towards the third quarter of 2016. In this quarter, we expect some upward price momentum ahead of the traditional peak in the third quarter. – CEO, Maersk Line

In keeping with their investment and growth strategy for emerging and developed markets, Maersk Line has announced three new services. The Seago Line’s Irish Sea service, SeaLand’s Atlantico service, and Maersk Line’s Transpacific TP18 service have been established to provide new trade opportunities to customers in Mexico, the United States, China, The British Isles, West Africa, and the Mediterranean.

maersk line thinks there is light on the horizon

We think there’s light on the horizon with the current turmoil in the container shipping industry potentially resulting in the elimination of industry overcapacity. – Chief Executive, AP Møller-Maersk

Maersk Line reported that at the end of 2015, its operating margin was five percentage points higher than the average of its rivals.

Time and again Maersk Line has demonstrated that, despite challenges, there are profits to be made in the container shipping industry. To be equally successful in their own approach, investors must carefully research opportunities and review investments to determine where the best opportunities are to be found.

Posted in personal thoughts | Leave a comment

How Has Container Shipping Survived The Economic Storm?

The strength of the international shipping industry is found in it’s ability to address new challenges and overcome seemingly insurmountable obstacles, whether they be financial, economic or demographic. This was most recently demonstrated in the actions of shipping industry leaders, when they were faced with the devastating financial crisis that began in 2008 (and early 2009) and has continued to challenge the world.

Even though there was a sharp drop in international trade, that was compounded by the rising costs of fuel, the global shipping sector once again demonstrated it’s resilience and innovation by forging new container shipping alliances, investing in much larger container ships and funding improvements to infrastructure and ports around the world. For the most part, their focus has been on improving over-all efficiency within themselves and their industry partners.

container shipping focus

There was a time when Maersk’s container shipping line was losing $8 million to $9 million per day. Make no mistake though, they were not the only ones suffering from operational inefficiency, rising competition and falling freight rates. But, if they [the global shipping industry] hoped to be profitable once again, container shipping lines knew they would have to address these crippling issues and find viable solutions that would provide long-term benefits.

Alliances and Partnerships

Although subject to sharp scrutiny from officials and other shipping lines, container shipping alliances have emerged as an ideal option to combat vessel over-capacity and avoid unnecessary competition on busy international trade routes. Perhaps the most widely scrutinized has been the 2M alliance, consisting of Maersk Line, the Mediterranean Shipping Company (MSC); two of the world’s largest container shipping lines.

To decrease the commitment and costs associated with maintaining a large container fleet, many shipping lines have chosen to partner with a container leasing company. Under lease agreements, container shipping lines do not have to invest human resources into managing and maintaining an active fleet of shipping containers.

Port & Terminal Investments

The additional time spent at port is negatively reflected in the shipping line’s profits. A longer stay at port mean more money. This has encouraged industry leaders and government officials to invest in improvements like innovative terminal software, railways/roadways, and ship-to-shore cranes, that will increase operational efficiency and decrease the length of port calls.

Ultra-Large Container Ships

Container shipping industry leaders have made enormous investments in ultra-large container vessels, like Maersk’s Triple-E fleet, that have been specially designed to lower the company’s bunker use and reduce the vessel’s environmental impact. In fact, the name Triple E is derived from the vessel’s three design principles: Economy of scale, Energy efficient and Environmentally improved. These ships are not only regarded as the world’s longest ships in service, but also the most efficient container ships per twenty-foot equivalent unit (TEU) of cargo.

the triple e container ship

In making multi-billion investments in the three areas identified above, major container carrier lines have been able to significantly lower their operational costs and improve their profit margin, year after year. In addition, this approach has provided an opportunity for them to address environment responsibilities and commitments, in a manner that is profitable for them as well as the economy and environment.

Posted in personal thoughts | Leave a comment