“Massive Deterioration,” the CEO called the phenomenon.
“Bellwether for global trade,” that’s how the Financial Times described Maersk Lines, the world’s largest container shipping company. It’s owned by Danish conglomerate AP Møller-Maersk, which also owns, among other divisions, Maersk Oil. The conglomerate reported fourth quarter earnings today. And they were a doozie.
Maersk B shares plunged over 9% to 7,395 Danish kroner, before bouncing off and closing at 7,875, down 3.6% for the day and down a breath-taking 52% from their peak on March 30 last year.
Global economic slowdown — or worse? That’s the question. This is what CEO Nils Andersen told the Financial Times in an interview after the earnings release:
“It is worse than in 2008. The oil price is as low as its lowest point in 2008-09 and has stayed there for a long time and doesn’t look like going up soon. Freight rates are lower. The external conditions are much worse, but we are better prepared.”
“Better prepared,” that is, than the Group had been in 2008.
He called global trade conditions “abnormal.” Containerized imports to Europe, Brazil, Russia, and West Africa all fell – in Europe and Brazil due to various economic reasons; in oil exporters Russia and West Africa due to the collapse in the price of oil.
The earnings report reflected it: in terms of seaborne container freight, the year had started out with some room for optimism and hopes for growth, but in the second half, and particularly in the fourth quarter, those hopes got hammered by an increasingly gloomy reality.
“Massive deterioration,” Andersen called this phenomenon in the interview.
“Acceptable full-year result in challenging times,” is what the Group called the phenomenon in its earnings report.
This “massive deterioration” of its business in the fourth quarter turned into “a perfect storm for the Group,” according to the earnings report: container freight rates collapsed as shipping capacity continued to soar, while growth in global shipping volume came to a halt.
Container shipping rates plunged across all trade routes, on average by 25% for Maersk, and hit an “all time low,” lower even than during the Financial Crisis.
So revenues at container carrier Maersk Line, by far the Group’s largest division, plunged 25% in Q4 to $5.19 billion mostly due to the collapse in rates. Maersk’s shipping volume was flat at 2.4 million forty-foot equivalent (FFE) containers. And this, it said, was “in line with the global container demand which is estimated to have grown 0-1% in Q4 2015.”
That stalled growth in trade is a reflection of the global economic slowdown. The report blamed “weaker imports into Europe” and the “slowdown in emerging markets.”
And yet, as growth in trade is grinding down, “the global container fleet grew by close to 8%,” it said. The global container fleet has been outgrowing demand for years, fired up by cheap money even for risky companies, thanks to pandemic central-bank easy-money policies. Hence overcapacity. Maersk contributed to that glut in ships. It still has 27 ships on order though is has cancelled its options to buy more. The glut of ships in face of weak demand triggered the collapse in rates.
The saving grace for Maersk Line – but not for Maersk Oil – has been the collapse of the price of oil price: Maersk Line’s bunker fuel costs dropped 52%, which lowered its costs per FFE unit by $244. And its “reported profit” swung from a $655 million gain in Q4 a year ago to a loss of $182 million.
The Group’s second largest division, Maersk Oil, got slammed by the oil price collapse. Revenues plunged 29% to $1.3 billion in Q4, and its loss ballooned from $32 million to $2.52 billion. This included impairment charges for “production assets with short lifetime such as Kazakhstan, Kurdistan and the UK as well as full impairment of deepwater assets in Angola and Brazil.”
But here too, a now common theme, played out by oil company after oil company: despite slashing costs and capital expenditures, production actually increased by 21% year-over-year to 333,000 barrels of oil equivalent per day.
In most of the Group’s other divisions, except Maersk Drilling, revenues dropped as well. Consolidated revenues in Q4 plunged 22% to $9.1 billion. In terms of profits, analysts surveyed by FactSet had hoped for $305 million. What they got was a net loss of $2.5 billion.
And the “bellwether for global trade” expects 2016 to be even tougher than last year, with lower freight rates, even more overcapacity, and stalling growth in global trade.
So, what’s booming in this economy? Read…. Bankruptcy & Restructuring Business “Highest Since Great Recession”