Container shipping to lead the way under Maersk’s new CEO
Greg Knowler, Senior Asia Editor | Jun 24, 2016 12:43AM EDT
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The fact that Maersk Line CEO Soren Skou will retain the position as he takes over as group chief executive is a clear indication that the Danish carrier plans to build its restructured business around container shipping.
Immediately after it was announced that Nils Andersen had been replaced as Maersk Group CEO, reports emerged that the company was considering splitting up its five core business areas that in addition to container transport include oil tankers, drilling, terminals and logistics and marine services.
Maersk Group Chairman Michael Pram Rasmussen told Danish media that the board was considering whether it made sense to break apart the five businesses.
“We are looking into if we have the right structure: should we be a group as we are today or might it be an idea to have a number of different separate businesses instead?” Rasmussen said.
The Maersk Group board of directors said in a statement it has asked Skou to investigate “strategic and structural options to further increase agility and synergies” and to report on progress by the end of the third quarter.
The vast amount of Maersk Group’s profit is generated by the container shipping business, despite freight rates plunging to record lows in the past year and continuing at weak levels into the first quarter. Rates have improved slightly in the past couple of months but remain well below break even point on most trades.
In an interview with JOC.com after announcing poor first-quarter results — Maersk Line saw its net profit falling 95 percent in what Andersen described as a “break-even result” — Skou said Maersk Line would in future focus more on the spot market.
“We’ve had a price war in our industry that has lasted for a year,” Skou said. “In April last year, we started to see significant drops in rate levels. That was because of a drop in demand to about 1 percent and at the same time 8 percent more capacity came into the market.”
As the line adjusted to the changing market, Skou said on Asia-Europe, Maersk Line’s contract to spot market rate ratio has risen to 50:50. “Every year we have to make a call on how much to sign off on contracts — anything from three months to one year contracts, generally, although we do have a few contracts that run longer than that — and how much to be on spot booking,” he said.
“That’s a call of the state of the markets and how we see things developing. This year the contract rates on Asia-Europe and the trans-Pacific are much, much lower than we saw last year. That is less attractive for us.”
With a growing fleet of mega-ships, Maersk Line is in a position to capture the lower unit costs that come from operating such large vessels should demand improve. Its 2M Alliance partner Mediterranean Shipping Co. is the world’s second largest container line by capacity and also operates mega-ships, making it possible to deploy strings of the big vessels.
The group’s oil transport and drilling businesses have been hammered by weak global energy markets. In March, Maersk Oil announced plans to cut back its operations in the U.S. and Angola with the oil price making deepwater projects uneconomical.
Following a weak first quarter, Maersk Oil said it was expecting a negative underlying 2016 result, pointing out that break even could only be reached with oil prices in the range $45 to $55 per barrel. Maersk Drilling was forecasting an even weaker result significantly below that of 2015, mainly because of lower day rates and more idle days.
Immediately after it was announced that Nils Andersen had been replaced as Maersk Group CEO, reports emerged that the company was considering splitting up its five core business areas that in addition to container transport include oil tankers, drilling, terminals and logistics and marine services.
Maersk Group Chairman Michael Pram Rasmussen told Danish media that the board was considering whether it made sense to break apart the five businesses.
“We are looking into if we have the right structure: should we be a group as we are today or might it be an idea to have a number of different separate businesses instead?” Rasmussen said.
The Maersk Group board of directors said in a statement it has asked Skou to investigate “strategic and structural options to further increase agility and synergies” and to report on progress by the end of the third quarter.
The vast amount of Maersk Group’s profit is generated by the container shipping business, despite freight rates plunging to record lows in the past year and continuing at weak levels into the first quarter. Rates have improved slightly in the past couple of months but remain well below break even point on most trades.
In an interview with JOC.com after announcing poor first-quarter results — Maersk Line saw its net profit falling 95 percent in what Andersen described as a “break-even result” — Skou said Maersk Line would in future focus more on the spot market.
“We’ve had a price war in our industry that has lasted for a year,” Skou said. “In April last year, we started to see significant drops in rate levels. That was because of a drop in demand to about 1 percent and at the same time 8 percent more capacity came into the market.”
As the line adjusted to the changing market, Skou said on Asia-Europe, Maersk Line’s contract to spot market rate ratio has risen to 50:50. “Every year we have to make a call on how much to sign off on contracts — anything from three months to one year contracts, generally, although we do have a few contracts that run longer than that — and how much to be on spot booking,” he said.
“That’s a call of the state of the markets and how we see things developing. This year the contract rates on Asia-Europe and the trans-Pacific are much, much lower than we saw last year. That is less attractive for us.”
With a growing fleet of mega-ships, Maersk Line is in a position to capture the lower unit costs that come from operating such large vessels should demand improve. Its 2M Alliance partner Mediterranean Shipping Co. is the world’s second largest container line by capacity and also operates mega-ships, making it possible to deploy strings of the big vessels.
The group’s oil transport and drilling businesses have been hammered by weak global energy markets. In March, Maersk Oil announced plans to cut back its operations in the U.S. and Angola with the oil price making deepwater projects uneconomical.
Following a weak first quarter, Maersk Oil said it was expecting a negative underlying 2016 result, pointing out that break even could only be reached with oil prices in the range $45 to $55 per barrel. Maersk Drilling was forecasting an even weaker result significantly below that of 2015, mainly because of lower day rates and more idle days.
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