Maersk Line results: Progress, but still unsatisfactory

A.P. Moller - Maersk Group Thursday said the results of its container business last year showed significant progress, but remain unsatisfactory.

The liner business, which includes the APM Terminals, had a profit after tax of $217 million in 2007, compared to a $568 million loss the prior year. Liner business revenue was $26.7 billion in 2007 compared to $25.3 billion in 2006.

Container shipping accounts for 52 percent of the conglomerate's revenue, but only 24 percent of cash flow and 6 percent of profit.

The results of the container shipping business is still not where it should be, said Nils Andersen, the parent company's chief executive officer.

He said the company would emphasize moving more profitable cargo rather than growing market share in the coming year.

As the world's largest carrier, there was no reason why the company should not be able to get its costs down lower than its competition, he said.

But that didn't mean the company had to have the absolute lowest cost. Instead the company would aim to offer value to its customers and not necessarily be the cheapest, he said.

Overall, A.P. Moller - Maersk Group saw profit rise to $3.4 billion in 2007, up 15 percent over the prior year. Group revenue improved 7.2 percent to $51.2 billion.

In 2008 the group said it expected revenue in the order of $60 billion and profit of $3.6 billion to $4 billion. It did not offer projections for the container shipping or other individual businesses.

The company emphasized the uncertainty in its forecast because of volatility in the fuel prices, currency markets and the weak U.S. economy.

Because of the "subdued U.S. economy, Andersen said the company cannot count on growth in the transatlantic and transpacific markets.

He said that while its container shipping business would be hurt by higher oil prices, it was hedged to some a degree by its booming oil and gas segment.

Andersen explained in the short term higher oil prices would hurt the container shipping because of difficulty in passing on all costs to customers immediately. And the oil industry will have trouble realizing full benefits from higher oil prices because of high prices.

However, over the long term, he said high oil prices might improve pricing in the container industry because oil costs are now such an important cost to carriers that they will have to pass through fuel cost to shippers.

In theory, he said, the full effect or changing oil prices should be passed onto customers. He expected a new bunker adjustment formula the company is rolling out should help Maersk do a better job of recovering fuel costs.

The company noted that most of its business is conducted in dollars, and it reports its results in both dollars and Danish krone. The company has begun to charge freight in euros on some services, and said in a response to whether it plans to expand that program that the market will decide what currency it uses. But if the dollar continues to slide, everyone may have serious thoughts about what the global currency is.

Andersen said the company expects a fairly rapid payback on its "StreamLINE program. The program will involve staff reduction of 2,000 to 3,000 employees, and will have a cost of about $250 million.

But Andersen emphasized the program is not just about layoffs, but improving profitability, making the business more attractive to customers and empowering employees.

Andersen said the company plans to grow its APM Terminal business in the coming year and is looking for new projects. He noted that the terminal business grows less quickly than container shipping business, but is less volatile.

Asked what the biggest positives and negatives were at the company since he joined the company last year, Andersen praised the great people and fantastically motivated organization with good plans for the future.

The downside? They don't have free beer here, said the former Carlsberg Brewery executive. 

Source: American Shipper