Maersk CEO: 2016 Needs Better Freight Rates

The container shipping industry needs better freight rates so as to be able to recover, CEO of Maersk Group Nils S. Andersen said today commenting on the release of the group’s interim results for the third quarter of 2015 and changing of outlook for business results amid weaker market.

Particularly, as indicated by the group, the container shipping market deteriorated beyond the group’s expectations especially in the latter part of Q3 and October and there seem to be no signs of recovery by the end of the year.

As a result, Maersk’s preliminary result for Q3 stood at USD 778 mill. with an underlying result of USD 662 mill. The preliminary result for the first nine months is USD 3,436 mill. with an underlying result of USD 3,080 mill.

What is more, Maersk adjusted its expectations for the 2015 result, which was expected to reach around USD 4 bn. based on contribution from Maersk Line which was projected to be above USD 2.2 bn. The new outlook has been cut to around USD 3.4 bn. as Maersk Line’s results are expected to be slashed for over half a billion, reaching around USD 1.6 bn.

“In terms of the contract base, of course this is unfortunate, because the low rates coincide with  the renegotiation of contracts. I would, however, like to say that this is not the first time we have experienced that, so I wouldn’t overemphasize its importance. It is an irritant, but we will have to overcome it. Of course, the industry needs better rates for 2016,” said Andersen, commenting on the impact of the freight rates.

When asked about rates for 2016 and a shift toward spot rates, in addition to potential levers to address this kind of environment, Andersen said that a greater movement toward spot rates is being considered.

“We have taken some steps also to reduce our contract coverage a bit. Hence, if the present rate level means that we can’t get contracts that are profitable we will, per se, get a situation where we are more on spot. But it is still early days and we will have to see how things develop,” he added.

In Q3 Maersk Line’s average freight rate amounted to 2,163 USD/FFE (2,679 USD/FFE in Q3 2014) and the company carried 2,427,000 FFE (2,401,000 FFE in Q3 2014), lower than expected.

The group’s sensitivity guidance for the last six months of 2015 states that the drop in freight rates of 100 USD/FFE will impact Maersk Line’s result negatively by around USD 0.5 bn. and that a volume reduction of 100,000 FFE will see Maersk Line’s result cut by USD 0.1 bn.

As a result, Maersk said that initiatives have been taken to adjust Maersk Line’s network accordingly.

All other business units maintain their result guidance.

World Maritime News Staff