Though the Danish conglomerate AP Møller-Maersk posted higher-than-expected earnings, it has cut its forecast for global trade growth and abandoned several medium-term profit forecasts, as per a report in FT.
Maersk overcame low oil prices and freight rates in its container shipping business to post a 7 per cent fall in underlying net profit in the second quarter at $1.1bn, which was well ahead of analysts’ expectations of $820m.
The world’s biggest container-shipping operator by capacity adapts to persistently low crude prices and stiff competition in the cargo market. It suffered a loss of market share in the first quarter amid growing price competition. Afterward, the company decided to price more dynamically to fight back.
“We will defend our market leading position,” WSJ reported the Chief Executive Nils Andersen as saying on Thursday. The loss at the start of the year was corrected in the second quarter when Maersk focused on retaining its edge, he said, enduring less financial pain than first feared in a period when prices continued to fall.
Andersen said Maersk would continue to protect its market share, though not aggressively chase a larger position. He argued that Maersk Line was obliged to “take back the market share” it had conceded in the first quarter when he said the carrier had been “very late joining the dynamic rate environment” – shorthand for a rate war – between Asia and Europe.
Maersk Line, responsible for transporting around 15 percent of the world’s manufactured goods, said costs dropped by 13 percent per transported container last quarter. Roughly 90 percent of the world’s goods are carried by sea with over 70 percent in containers.
Citing global economic uncertainty and the persistence of low oil prices and the weak state of the container shipping industry, Maersk made an unusually large number of changes to its guidance.
It now expects global container demand — a proxy for growth in world trade — to increase only 2-4 per cent, down from 3-5 per cent. It abandoned its midterm profit targets for all businesses except Maersk Line, the world’s largest container shipping company.
The operating profit of container shipping division Maersk Line decreased by 7.3% yoy after tax to 507 million USD, but remained above the forecasts of 482 million USD, despite of the cheap freight rates in Asia-Europe routes. The net profit of AP Moeller-Maersk lowers to 1.07 billion USD, which again was above the median assessment of the experts for 0.73 billion USD.
Maersk Line's competitors include family-owned Mediterranean Shipping Company from Switzerland, French family-controlled CMA CGM, Hapag-Lloyd from Germany, Evergreen from Taiwan, Cosco Shipping and CSCL , both from China.
A target of generating $1 billion in profit in 2018 from drilling and reaching 400,000 barrels of oil output a day by 2020 are no longer priorities, he said. “The world has changed and we need to change with it,” Andersen said.
AP Moeller-Maersk is also actively searching for North Sea oil acquisitions as the current drop in energy prices makes takeovers a better option than exploration.