Shipping: A.P. Moller-Maersk On What A Trade War With China Means

It “would have a very negative effect on our business”

-Maersk CEO

From Wolf Street, Feb. 8:

World’s Largest Container Carrier “Unexpectedly” Has Big Loss in Crushed Industry. Now Trade War with China Looms

A.P. Moller-Maersk – a conglomerate that includes the largest container carrier in the world, transporting about 19% of all seaborne containerized cargo, plus large port operations, an oil driller, and other units – got caught in two industries that saw prices collapse: seaborne container freight and oil.

So it reported a doozie of a “surprise” today: a loss of $2.67 billion in the fourth quarter, and a loss of $1.9 billion for the year 2016, its first annual loss since 2009, when shipping had come to a near standstill during the Global Financial Crisis, and its second loss since World War II.

It could have been worse: bunker fuel rates, as a result of the oil price collapse, were 29% lower in 2016 than in 2015, the company said, and this helped bring costs down.

But it’s doing a heck of a lot better than Hanjin, one of its big competitors that went bankrupt last August and is now being liquidated, with Maersk picking up some of the pieces.

The loss included write-downs in Q4 of $2.76 billion, mostly for its oil related businesses. One-time items? No. An annual occurrence: In 2015, write-downs amounted to $3.18 billion, most of it in Q4 (though it still managed to eke out an annual profit of $925 million); in 2014, $2.7 billion; in 2013, $369 million; in 2012, $499 million. And so on. In total, $10.7 billion in write-offs since 2010.

Revenues have been on a downward spiral since peaking in 2012 at just under $50 billion. By 2014, they were $47.6 billion. By 2015, $40.3 billion. And in 2016, revenues dropped another 12% to $35.5 billion.

From 2012 through 2016, revenues have plunged 29%! Most of the revenue action is taking place in its two largest units:

Revenues of Maersk Line, the container carrier unit, dropped from $27.4 billion in 2014 to $23.7 billion in 2015 and to $20.7 billion in 2016. A 24% drop in two years.
Revenues of Maersk Oil peaked in 2012 at $12.6 billion. By 2016, they were down to $4.8 billion. A 62% plunge in four years.

In 2016, as the industry was consolidating, with some of its members keeling over, wrecked by overcapacity among carriers and lackluster demand growth for manufactured goods around the world, freight rates plunged 19% year-over-year, Maersk said.

In this scenario, Maersk “unexpectedly lost money in 2016,” as Bloomberg put it. “Unexpectedly,” because analysts had forgotten to expect the annual write-offs. Instead, they’d expected the company would make $963 million....MORE

Also at Wolf Street, Feb. 10:

Global Shipping Meltdown Mauls German Banks, Retail Investors, Taxpayers