Investors around the world continue to face reaffirming data leading to a possibility of a global trade slowdown. AP Møller-Maersk Group, the Danish conglomerate operating the world's largest container shipping operator, Maersk Line, is foreseen as a bellwether for insight on international trade. The Maersk group reported it's 2015 annual results; net profit down by 84%, which covers the group's five operating units. Maersk Line, which makes up for the majority of the group's revenues, reported results down by 43%. Mostly down to the continued overcapacity hurting the market freight rates, which are currently lower than the 2008/09 recession years.
Maersk is not alone in announcing such gloomy results to the market. Weak annual results are predicted from other key shippers, which include: Evergreen Marine Corp., Orient Overseas International and Mitsui O.S.K. Lines.
The container shipping industry extrapolated the demand growth of good times and anticipated an unsustainable rise in demand for containers. The ship orders placed years earlier are now coming onto the market, with capacity clearly exceeding demand. This trend is set to continue going into the future. The vessels that seem to be coming on the market are getting bigger and bigger. A typical vessel coming onto the market in 2015 will handle around 10,000 twenty-foot equivalent units (TEU), five times larger than ships built in the 1990s.
These larger vessels are only going to make the supply-demand imbalance worse. Maersk Line received it's largest ever container ship in 2013, know as the Triple-E vessel. Maersk placed an order of 20 Triple-E vessels in 2011, with each vessel having the potential capacity of carrying up to 18,000 TEU. The 20 vessels are to be delivered over the years leading up to 2017.
Now, as the ships come onto the market, of which their capacity growth far exceeds the demand growth, freights rates have headed south. Gloom reports around the world of a slowdown in China, as well as emerging economies play into investors' fears. Resulting in significant share price falls of key listed container shipping operators.
Nearly all container ships are running routes at losses. Ship operators are cutting back capacity of ships to help curb their losses, as well as contribute to the market stability of the supply-demand imbalance. Maersk group reported idle capacity of 7% from it's fleet of owned ships.
Technological advancements in the shipping industry may prove to be a competitive force towards ensuring lower 'unit costs' for transport, such endeavours require capital investment for the longer-term. Vertically integrated operators may synergies costs across vessels, port terminals and intermodal logistics. Present times are testing the management’s skill towards cost reductions, and leaner operating models. Forward guidance given by Maersk group for the FY16, projects even lower results than just reported for FY15.
Review Mohammad's analysis of A.P. Moller-Maersk for the HOLT Community Competition, which was recommended for publication by the Academic Review Board.
Mckinsey: http://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/the-hidden-opportunity-in-container-shipping, Author: Timo Glave,Martin Joerss, Steve Saxon, Publication Year: 2014
AP Moller Maersk annual report: http://files.shareholder.com/downloads/ABEA-3GG91Y/1487550505x0x874219/9... AP Moller Maersk Group, Publication Year: 2016
Financial Times: http://www.ft.com/cms/s/2/1d8fd496-cfd1-11e5-986a-62c79fcbcead.html#axzz... Richard Milne, Publication Year: 2016
Bloomberg: http://www.bloomberg.com/gadfly/articles/2016-02-10/maersk-big-bet-on-sh... Chris Bryant, Publication Year: 2016
Maritime News: http://www.newsmaritime.com/2016/maersk-group-net-profit-in-2015-dropped-with-84/, Author: Svilen Petrov, Publication Year: 2016
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