By Mike Wackett

Maersk Line will cull unprofitable services, cut capacity and reduce feedering in an urgent bid to stem losses caused by a toxic mix of low freight rates and soaring fuel costs. The refocused Maersk Group recorded an net loss of $239 million in the first quarter across its Ocean, Logistics & Services, Terminals & Towage and Manufacturing & Others business divisions. Chief Executive Søren Skou said the result was “unsatisfactory” and that “a number of short-term initiatives are being implemented to improve profitability”. For Maersk Line, Chief Operating Officer Søren Toft added: “We have put a number of plans in place. We will implement a number of capacity reductions over the next two quarters on trades that are not yielding the desired results.” He advised that the carrier would also reduce the amount of feedering and, instead, endeavour to channel cargo to directly served ports, while further cost-saving would involve network optimisation and empty container positioning.

Mr. Toft confirmed Maersk Line had no plans to order any new ships “for at least the next 12 months”, and said capacity could be reduced in the next two quarters due to the emergency rationalization measures. Q1 revenue for Ocean, which comprises Maersk Line, Hamburg Süd, Sealand, MCC and Seago, along with APM Terminals’ transshipment hubs, was up 38 per cent on the same period of the previous year, to $6.8 billion, although excluding Hamburg Süd the growth was just 10 per cent. Liftings jumped 24 per cent to 6.4 million TEUs, but excluding Hamburg Süd, the volume growth was a modest 2.2 per cent, compared with a market par of 3-4 per cent. Average freight rate per FEU was up 7 per cent, to $1,832, boosted by a 9 per cent uplift in north-south rates and a 21 per cent hike on intra-regional trades, but negated by a 0.9 per cent decrease in east-west rates.

But unit costs were up 12 per cent, driven by higher fuel costs and adverse rates of exchange. “Hamburg Süd brings into the mix a business with higher rates, but also higher costs to serve,” said Chief Commercial Officer Vincent Clerc. The average cost per tonne paid by Maersk for its bunker fuel was 19 per cent higher at $382, with total consumption at 3.1 million tonnes, up 28 per cent due to the inclusion of Hamburg Süd’s fleet.

Meanwhile, for Terminals & Towage’s gateway terminals – separate from Ocean’s hub terminals – APMT won 13 new contracts in the quarter but lost four, producing a 15.6 per cent increase in throughput, to 4 million TEUs, again partly attributed to the inclusion of Hamburg Süd. Logistics & Services, which includes forwarder Damco, saw “strong” growth in the quarter, but continued investments in digital solutions and return-on-equity (ROE) losses dented profits.

Investor analysts expressed concern that fuel increases were not being recovered from shippers and Mr. Clerc admitted that “it had been difficult to pass on the full amount to contract customers”. He also conceded that, in the short-term or spot market, it had been “especially difficult in some areas where we have faced a strong capacity injection”.

Denying that the business was “out of control” and that its executives were “distracted” by the restructuring, Mr. Skou said the company was “more disciplined on capex than in the past”, adding “we believe the year will improve”, citing better supply-demand predictions for the second half. However, analysts remain unconvinced that the group can achieve its guidance of an underlying profit that beats the $356 million recorded in 2017.

Reprinted courtesy of The Loadstar (