By Mike Wackett
Alphaliner’s analysis of the financial results of 17 main ocean carriers for the first six months of the year gives a generally improving outlook for the industry, although the turnaround in operating earnings was mainly driven by better-than-expected volume growth in the second quarter. Of the carriers that are obliged, or choose to report their results, Maersk’s container division was way ahead of its peers posting a first half net profit of $978 million and a core EBIT margin of 7.3 per cent, compared to the average margin of the 17 carriers of -0.5 per cent.
This further emphasizes the massive gulf that has opened up between Maersk Line and its competitors across the trade lanes of the world, and it is difficult to see how those carriers in the wake of the blue giant’s Triple-Es can begin to bridge the gap. In fact, from Alphaliner’s table of carrier operating margins for the period, only global carriers CMA CGM, OOCL, K Line, Hanjin and niche operator Wan Hai come anywhere near to a respectable challenge by at least recording a positive EBIT: but they are not in the same league.
Maersk has an economy of scale foundation, with lower unit costs than its competitors which means higher freight rates are not as crucial to it as to the sickly results of some competitors. Indeed, recent statements from Maersk Line chief executive Soren Skou to Lloyd’s List that the carrier does not expect freight rates to improve and that “all the evidence points to declining rates”, has undermined the September round of general rate increases, whether this was the intention or not. Large forwarders must have latched on to these comments and will be suitably armed for their next rate negotiations with carriers.
Meanwhile, in the same article Mr Skou revealed that Maersk Line’s revenue is now derived approximately 50-50 between long-term contracts and the spot market. This follows years of refusal from executives at Maersk Line to accept the importance of the spot market to its business and despite denials by Mr Skou of a change of strategy, the ratio between contract and spot business still suggests a shift in policy in the corridors of its Copenhagen headquarters.
By not relying so much on contract business, Maersk Line will be better prepared for when cargo levels subside later in the fall, when it is commonly every carrier for itself to fill ships from the commoditized bucket shop. Maersk Group Chief Executive Nils Andersen has said before of bloody rate wars erupting on trade lanes that when Maersk Line suffers, “its competitors suffer more”, and it follows that with the lowest unit cost in the industry, it is better prepared than its competitors to withstand the depressed rates that Mr Skou appears to be expecting.
Reprinted courtesy of The Loadstar (www.loadstar.com)