Maersk Will Restrain Costs, Expand Logistics Services on Weak Shipping Outlook
November 15 2019 - 4:07PM
Dow Jones News
By Costas Paris and Dominic Chopping
A.P. Moeller-Maersk AS is stepping back from buying new vessels
as the Danish shipping giant focuses on controlling costs and
targets its growth efforts to inland logistics rather than
oceangoing trade.
"We are focused on our costs," Chief Executive Søren Skou said
Friday, as the Danish company posted better-than-expected earnings
for the third quarter despite declining revenue. "We have a strict
focus on capacity and network capacity."
That includes stepping back from an arms race that has seen
several container lines in Asia and Europe order megaships with
significantly more capacity per vessel than the biggest ships
operated by Maersk Line, the company's main container shipping
unit.
Mr. Skou said in an interview that Maersk instead will focus its
capital spending and strategic planning on efforts to build up its
business beyond port-to-port ocean transport, expanding its
logistics services business that provides more profitable long-term
growth potential.
"We need to grow in acquisitions on land warehouses and customs
house clearing services," Mr. Skou said. "We have invested around
$1 billion already on the land side supply chain and we are looking
to put in hundreds of millions more over the next year."
The effort has been three years in the making, but revenue from
the what Maersk calls its Logistics & Services unit totaled
$1.6 billion in the last quarter, a fraction of the $7.3 billion
that came from shipping. Gross profit growth from Logistics and
Services improved to 13.4% in the quarter.
Mr. Skou said he wants half of the company's income to come from
nonocean services over the next three years.
Maersk has around 70,000 customers at sea, with clients ranging
from U.S. retail chains and car makers to furniture suppliers,
electronics companies and clothing importers.
But less than a quarter of those customers use the company to
move their goods from ports to warehouses and distribution centers,
and its logistics infrastructure -- around 100 inland
cargo-handling locations around the world -- is small compared with
global logistics providers. Switzerland's Kuehne + Nagel
International AG, Deutsche Post AG's DHL Supply Chain of Germany
and Switzerland-based Ceva Logistics -- a subsidiary of French
shipping competitor CMA CGM SA -- each have hundreds of warehouses
globally.
The company wouldn't say how long it will stay away from the
ship-buying market.
Finance chief Carolina Dybeck Happe said in an investor call
that "there are no intentions now to invest in any large
vessels."
"We will, of course, at some point, need to replenish our fleet
to maintain our competitive network," she said. But "new vessel
orderings in the years to come will be to maintain the
competitiveness," rather than to gain more market share in
shipping.
Maersk, which moves around 20% of all containers, reported a net
profit of $520 million in the quarter ending Sept. 30, up from $396
million a year earlier, compared with average analyst expectations
of $359 million. Net profit attributable to shareholders totaled
$506 million.
That came as overall revenue slipped 1% to $10.06 billion.
Business at the company's main shipping unit was flat as a 2.1%
rise in volumes was offset by a 3.6% decline in average freight
rates from a year ago.
Maersk expects box growth at around 2% this year, less than half
the 4.5% recorded in 2018. The overall industry container fleet
will grow by 4%, according to data by Braemar ACM Shipbroking in
London.
The carrier estimates uncertainty from global trade skirmishes,
including the U.S.-China trade war, likely reduced container trade
by 0.5%-1.0% this year.
"Volume growth of 1.5% in the third quarter, which is
traditionally the busy quarter leading into the Christmas trade, is
a sign that the world is not spinning as fast as it has done for
many years," Mr. Skou said.
Write to Costas Paris at costas.paris@wsj.com and Dominic
Chopping at dominic.chopping@wsj.com
(END) Dow Jones Newswires
November 15, 2019 15:52 ET (20:52 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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