Part of the mystery about where all the profits have been going in the container shipping business was moderated today when the Maersk Line, announced second quarter net operating profit up by almost a quarter, from US$439m in second quarter of 2013 to today’s number of US$547m. EBITDA (Earnings Before Interest, Tax, Depreciation and amortisation) is up less however, at US$1024m which is an 11% increase year-on-year.
Maersk, which is the largest container line with approximately 15% of the market, experienced the growth in demand as well as the weakness of rates seen elsewhere. Although the volume of containers handled increased by 6.6% to 2.3m ‘Forty Foot Equivalent Unit’ (FFE) for the quarter year-on-year, revenue only increased by 3.9% to US$6.9bn. This reflected a fall in revenue per FFE of 2.7%, although rather confusingly Maersk reports a slight increase in the average freight rate.
Key to the better profits was operating efficiency. Bunker fuel costs fell 2.8% reflecting a 1% fall in fuel consumed despite an increase in container shipped. Unit cost per FFE fell by 4.4%.
The means of doing this were the usual combination of ‘super-slow steaming’ and network efficiencies complementing the superior cost profile of Maersk huge vessels, of which the company is expecting a further 11 over the next year, despite 8% of its present fleet being idled.
Maersk is growing faster than the market, which the company estimates will expand between 4 and 5%. With volume growth running at over 6% Maersk appears to be able to take market share and increase profits which gives credence to the companies claim to be achieving “cost leadership”.
It has to observed that Maersk Line’s results contrasted with Damco, the freight forwarding business of A.P. Moller-Maersk. It saw a fall of 1% in ocean freight volumes and an 8% decline in air freight pushing the company into a loss.
Although Maersk’s profit growth does not completely explain why so many other shipping lines and forwarders are losing money and market-share, it does suggest that the strength of the biggest carrier is making life hard for its rivals.