Maersk Paints a Gloomy Picure

By Aiswarya Lakshmi

Saturday, August 13, 2016, 2:38 AM

Photo: Maersk Line

 Danish shipping conglomerate A.P. Moeller-Maersk A/S has reported a plunge in profits in the second quarter in the face of tough market conditions. 

 

Maersk's quarterly net profit dropped 89 per cent to $118m compared with a year earlier. However, it stuck to a profit forecast of an underlying profit for 2016 significantly below last year’s $3.1 billion.

 

The company maintained its outlook for an underlying profit for the full year significantly below last year's $3.1 billion.

 

Soren Skou, head of Maersk Line called the results “unsatisfactory”. “Cost reductions and operational optimisations . . . made a significant contribution to mitigating the impact of the negative market conditions,” Skou said in a statement. 

 

Skou said that despite the loss he expected Maersk to hit its goal in the second quarter of having a profit margin 5 percentage points above that of its average rival, indicating the lossmaking state of much of the industry.

 

The company lost money in its shipping division, Maersk Line, but said that unit costs per 40-foot container fell to $1,911 in the quarter from $2,246 a year earlier. Signs of greater efficiency show the company is likely to perform better in coming quarters, according to analysts.

 

Global container demand grew 2% year-over-year, but the global container fleet grew 6% during the same period, Maersk said. Freight rates declined across all trades, by the most in North America and West Central Asia, but trade in Africa, Oceania and Europe was also notably lower, it said.

 

A record number of around 150 container vessels are expected to be scrapped in 2016 but it will not be enough for an industry battling over capacity, low demand and falling rates, consultancy firm Drewry said in July. Imbalance between demand and supply is expected to persist in coming years.

 

According to a Reuter's report, the group is fighting to remain the world’s leading container shipping carrier as a wave of mergers and acquisitions, particularly in Asia, creates new challengers.

 

Maersk is not alone in struggling with the industry downturn. German container shipping group Hapag-Lloyd said on Wednesday it dropped to a first-half operating loss of €39.7 million as disappointing freight rates hurt its business.