Improved vessel utilisation is the key to maintaining profitability in what is expected to be a challenging market according to Soren Skou, Chief Executive Officer of Maersk (Nasdaq OMX: MAER).
The company has maintained a tight rein on capital expenditure over the past year with no large terminal projects or costly new ships ordered and this policy will continue until at least 2020, said the company.
“We have as a company a long history of not being disciplined on our capex, but now we are focusing on capex,” said Skou.
The container carrier currently has around 4 million twenty-foot equivalent (TEU) of capacity in its vessel operations, and with the container trade expected to grow by 1 percent to 3 percent, there would ordinarily be some expansion in capacity.
But Skou said the company would improve the utilisation of its vessels and improve its network to accommodate any new growth rather than expand its fleet.
According to Maersk’s figures the container trades increased 2 percent in the first quarter of 2019, compared to the same period in 2018, and the major driver of that growth was a 7.1 percent increase in the Asia to Europe trade lane. Imports to North America fell 3.1 percent as a consequence of stockpiling of inventory in the fourth quarter of 2018 in an effort to avoid new tariffs introduced by President Trump.
“The global container trade grew 1.7 percent in the first quarter of 2019 compared to first quarter 2018, showing a weaker momentum than in 2018 when full-year average trade growth was 3.6 percent.
“The moderation of container demand growth reflects a broad-based slowdown in all the main economies, following the recovery of 2016 and 2017, as well as negative effects from fast-forwarding of U.S. imports in the fourth quarter 2018 when retailers prepared for a tariff hike,” Maersk said in a statement.
The company reported a 42 percent increase in profits for the first quarter of 2019 that it said was driven by a 3.9 percent increase in average freight rates and a 2.8 percent improvement in total costs, said the company.
The Danish carrier closed the first quarter with a 33 percent increase in earnings before interest, tax depreciation and amortization to $1.2 billion and profits of $927 million. This was achieved on revenues of $6.9 billion, up from $6.8 billion in the first quarter of 2018, in spite of a 2.2 percent decrease in volumes.
Even though the company had a strong start to the year with revenue up 2.5 percent and operating earnings increasing by a third, Skou pointed out that, “we reaffirm our guidance for the 2019 results. We are still facing considerable uncertainties from weaker macro numbers as well as the risk from trade tensions and implementation” of the International Maritime Organization’s 2020 mandate for reducing sulfur emissions from ships.
“In the first quarter, volumes on trans-Pacific trade between Asia and North America have shown signs of decline and new tariffs can potentially reduce expected growth in global container volumes by up to 1 percentage point,” he added.
Consultancy Maritime Strategies International (MSI) has warned that the outlook for the two major east/west trades from Asia to Europe and North America remains somber. MSI said, “we expect the Transpacific is heading for a period of pronounced negative growth.” While its forecast for the European trades acknowledged that the trade had seen significant growth, but MSI said this seemed high and “some revisions may be forthcoming.”
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