By Mike Wackett
Maersk has been obliged to issue a profit warning ahead of the publication of its half-year results after its earnings guidance proved to be “overly optimistic”, according to consultant Alphaliner. The Danish transport group issued the “adjustment to expectations” to the stock exchange, based on challenging trading in the second quarter. It said it saw profitability “negatively impacted”, with a 28 per cent increase in bunker prices over the same period of 2017, and a 1.2 per cent drop in average freight rates. In its Q1 results, published in May, Maersk confidently reiterated its full-year guidance of EBITDA of $4-5 billion with a net profit above the 2017 figure of $356 million.
However, CEO Soren Skou said spot rates suffered a “significant drop” in the second quarter and Maersk Line had continued to experience “very high” bunker prices, for which it had “not been able to get fully compensated in freight rates”. As a consequence, Mr. Skou said, Maersk’s 2018 guidance was being downgraded to an EBITDA of $3.5-4.2 billion and an as yet unspecified lower, but still “positive” net profit.
“While east-west spot freight rates are holding up well, freight rates on several north-south tradelanes have tumbled under pressure from overcapacity,” noted Alphaliner.
“Maersk, which has a significant exposure on the north-south tradelanes, would be particularly impacted by the weaker rates on these routes.”
Indeed, spot rates between Asia and South America, for instance, have fallen dramatically since the beginning of the year, and in early August the Shanghai Containerized Freight Index (SCFI) recorded a further $355 slump in rates to Santos to $1,576 per TEU, which compares with the market rate of over $3,000 in January.
During Maersk’s Q1 earnings call, Chief Commercial Officer Vincent Clerc conceded that the carrier had been unable to pass on to shippers the full extent of the fuel increase, and added that it had been “pretty dicey” to renegotiate contracts during a period of escalating bunker prices. Maersk reported an “unsatisfactory” underlying net loss of $239 million in the first quarter and pledged that it had “a number of plans in place” to reduce its costs, including capacity reductions and feeder optimization.
But despite the profit warning, Maersk saw its shares bounce back, as investors regarded the revised guidance as “not as bad as feared”, along with Mr. Skou’s prediction of improved rates in Q3. Maersk’s stock price had tumbled around 22 per cent on concerns of a “loss of focus” at the Copenhagen headquarters, along with fears of an escalating trade war between the US and China impacting liftings.
Reprinted courtesy of The Loadstar (www.theloadstar.co.uk)