Maersk warns coronavirus could significantly impact Q1 earnings
Maersk Line has reported improved profits in 2019 despite bearish global container growth.
However, A.P. Moller-Maersk (APMM), the parent company of the world’s largest box carrier, warned that the spread of the coronavirus and the shutdown of large parts of the Chinese economy would be damaging for 2020 first quarter earnings given its impact on the group’s liner, logistics and warehousing activities.
“We estimate that right now that factories in China are operating at 50-60% capacity and will be ramping up to around 90% capacity by the first week of March,” said Søren Skou, CEO of APMM, in an earnings call earlier this morning.
Maersk Line has already cancelled 50 sailings in addition to services that were blanked for Chinese New Year holidays and factory closures in late January.
While there remains many uncertainties around the long-term supply chain impact of coronavirus, Skou said that assuming there were “no new outbreaks and no big outbreaks in other countries outside China, the next two to three weeks will really tell us what trend we are on”.
He is hopeful of a “V-shaped crash and recovery” which would see weak first quarter container shipments be followed by a strong rebound in April, May and June.
“It’s almost given that Q1 will be impacted, so the long-term impact will really depend on how long the outbreak lasts,” he added.
Boardroom upheaval fails to dent 2019 profits
APMM reported earnings before interest, tax, depreciation and amortisation (EBITDA) of $5.7billion last year, up 14% compared to 2018 despite revenues dropping marginally to USD$38.9 billion.
The group’s EBITDA margin of 14.7% last year was up significantly from the 12.7% recorded in 2018.
2019 saw plenty of boardroom disruption at APMM, not least the loss of chief operating officer Soren Toft in November. He joined rival and 2M partner Mediterranean Shipping Company where he has taken the reins as CEO.
However, despite the upheaval, Skou said 2019 had seen the company take further steps towards creating a fully integrated business structurally and in terms of its market proposition.
“While we still need to improve returns, we delivered solid progress in our financial performance in 2019 while progressing the business transformation, in spite of weak trade growth, ongoing trade tensions and geopolitical uncertainty in many markets,” he added.
Freight rates creep up in 2019
Maersk Line, APMM’s Ocean division, recorded average loaded freight rates of $1,883 per FFE in 2019, up marginally on the $1,879 per FFE posted a year earlier.
Ocean’s EBITDA rose 15% last year to $4.4billion on static revenue of $24.8 billion, while its EBITDA margin of 15.3% was up two percentage points compared to 2018.
Container volumes handled by Maersk was barely changed at 13,296k FFE (Forty-Foot Equivalent unit) in 2019 compared to 13,306k FFE a year earlier.
Maersk said the performance was below global market growth of 1.4% “due to decreases in East-West and North South trades partly offset by increase in volumes in the intra-Asia trades”.
Transpacific frontloading hurts
A year-on-year decrease in East-West liftings was attributed mainly to lower trans-Pacific volumes in 2019 after heavy frontloading in the fourth quarter of 2018 due to the US-China trade war, and “commercial and operational decisions affecting the volume growth to improve profitability”.
The decrease in North-South volumes was mainly driven by weak demand on Latin America and Oceania trades throughout 2019, which was “partly offset by higher headhaul volumes in East and West Africa from Asia and Middle East”.
Skou said the group 2019 result provided a “solid starting point for 2020 to further expand our end-to-end offering within container logistics while at the same time managing the market challenges that are obviously out there”.
Maersk acquires Performance Team
The company’s supply chain ambitions were laid bare yesterday when it announced the acquisition of Performance Team, a US-based warehousing and distribution company.
Performance Team specializes in B2B and B2C distribution solutions and, according to APMM, has a track record of profitable growth of 17% per year for the last four years. It posted revenues of $525 million in 2019.
In an earnings call this morning, Skou said the acquisition would further strengthen APMM’s capabilities as an integrated container logistics company offering end-to-end supply chain solutions.
“It’s a strong fit with our current business,” he added. “The Performance team has 24 warehousing sites. We have 22 in North America. So we have well above 40 warehouse facilities covering 1.4m square metres of space and we’ll have a combined warehousing business with turnover of close to a $1 billion dollars in the U.S. going forward.”
It will further bolster the company’s logistics profile. APMM’s Logistics & Services division saw revenues drop last year to $6 billion, from $6.1 billion in 2018.
The result was attributed to “a decrease in sea and air freight forwarding activity, which was only partly offset by an increase in warehousing and distribution”.
© 2019 Worldfreightrates News