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Maersk Profits Fall 86% Thanks to Low Freight Rates

Ocean freight costs have gotten so low that some have said it’s never been cheaper to ship goods around the world. And those low costs, coupled with also low oil prices, weighed on Maersk Group profits in the first quarter.

The global trade and shipping company reported profits for the period down 86 percent to $224 million.

“While market conditions remain challenging, we continue to adjust our cost base to the new conditions and maintain a good operational performance across our businesses,” group CEO Nils S. Andersen said in a statement. The company’s operating expenses were down $1 billion, owed largely to lower bunker prices and cost saving initiatives like lower oil exploration costs.

For the company’s Maersk Line business, the world’s largest container shipper, profits fell from $714 million in the first quarter of 2015 to $37 million in this year’s first quarter ended March 31.

Oil prices are down 37 percent and container freight rates are currently 26 percent lower than average, which led to a 20 percent plunge in revenue to $8.5 billion for Maersk.

As of March 2016, according to freight forwarder FlexPort, it cost roughly $400 to move a 40-foot container from Shenzhen to Rotterdam—which is much cheaper than FedEx’s lowest quote ($1,015.12) for shipping a 20-lb box of clothing the same route.

Maersk attributed the freight rate decline to lower bunker prices and deteriorating market conditions.

“Container freight rates declined across all trades, especially Maersk Line’s key trades to/from Europe as well as Latin America and North America were impacted,” the company noted. Freight revenue in the period was $4.5 billion, while other revenue $514 million.

The group still expects its 2016 profits to be “significantly below” last year’s $3.1 billion, and for Maersk Line specifically, profits will follow the same subpar pattern, projected to come in well below last year’s $1.3 billion as a consequence of the overly-low freight rates.

“Global demand for seaborne container transportation is still expected to increase by 1-3 percent,” the company noted. “Maersk Line aims to grow at least with the market to defend its market leading position.”