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Maersk Profits Grounded by High Fuel Prices

Dragged down by major increases in bunker fuel prices, ocean freight and logistics giant A.P. Moller – Maersk reported a first-quarter profit of $201 million that was flat against the same period last year, as revenue rose 0.5% to $9 billion.

Revenue gains of 10 percent to $519 million in Maersk Line and 33 percent to $343 million in Maersk Oil were offset somewhat by decreases of 47 percent to $310 million in Maersk Drilling and 56 percent to $62 million in Maersk Supply Service, the company said.

Operating expenses increased 0.4% to $7.3 billion, mainly reflecting an increase of $569 million in Maersk Line due to 80 percent higher bunker prices and 10 percent increase in volume, partly offset by decreases in Maersk Oil and Maersk Drilling, stemming from cost saving initiatives across all cost categories.

Maersk said the new strategic direction for the Transport & Logistics division to integrate the businesses is progressing as planned. A key part of the growth strategy, Transport & Logistics is developing and introducing new digital products and services to customers. As examples to support these initiatives, Damco launched its digital freight forward platform Twill, and Maersk Line announced a collaboration with IBM on developing blockchain solutions to digitize supply chain documentation.

The sales and purchase agreement to acquire the German container shipping line Hamburg Süd from the Oetker Group was approved by the boards of both companies. Maersk said the acquisition is expected to generate annual operational synergies of around $350 million to $400 million from 2019, primarily derived from integrating and optimizing vessel networks and utilizing terminal capacity in APM Terminals.

The Transport & Logistics division realized a consolidated revenue increase of $7 billion to $6.4 billion, while profits fell 1 percent to $79 million, in line with expectations with gradually improving container freight rates and normal seasonal impact around Chinese New Year.

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Maersk Line, the world’s largest container shipping company, reported a loss of $66 million compared to a profit of $37 million in the prior-year quarter.

Maersk said market fundamentals continued to improve in the first quarter and demand outgrew nominal supply for the second consecutive quarter. Transported volumes increased 10 percent partly due to improved demand, but also reflecting an increased market share, maintained from the second half of 2016.

Freight rates increased 4.4%, which did not fully compensate for the 80 percent increase in bunker price. Freight rates mainly increased on East-West trades and especially from Asia to Europe, while North-South trades were below last year.

The World Container Index assessed by Drewry, a composite of container freight rates on eight major routes to and from the U.S., Europe and Asia, showed rates down 3.4% to $1,557.38 per 40-foot container for the week ended May 11, although they were up 40 percent from the same period of 2016.

The company maintained its forecast of a profit above 2016’s $711 million for the current fiscal year. Gross capital expenditure for 2017 is still expected to be $5.5 billion to $6.5 billion. The guidance for 2017 excludes the acquisition of Hamburg Süd. The Transport & Logistics division reiterates the expectation of a profit above $1 billion.

Due to gradual improvements in container rates, Maersk Line continues to expect an improvement in excess of $1 billion in profit compared to a loss of $384 million last year. Global demand for seaborne container transportation is still expected to increase 2 percent to 4 percent.