Maersk CEO: We are committed to making a tangible environmental impact in this decade
Danish shipping group Maersk is pressing ahead with its first-mover tactics when it comes to decarbonizing its operations as it looks to reap its first fruits already this decade.
“We have recently announced the order of further six dual-fueled green methanol-enabled container ships. As we maintain our commitment to a fleet size of 4.3 million TEUs, all of these vessels are intended to replace existing capacity. The ships will be delivered starting 2023, with the bulk coming to market in 2025, and they are expected to generate emission savings of around 1.3 million tons of CO2, equivalent to 5 percent of our Scope I emissions in 2021,” Søren Skou, CEO of A.P. Moller – Maersk, said in an earnings call.
“As a society, we are at the very beginning of this journey, but Maersk is committed to making a tangible impact in this decade. Our investment in green methanol-powered ships is one aspect of that strategy. But I am also pleased to see the progress of our Eco delivery product which offers ocean transport that uses drop-in biodiesel. The growth trajectory continues with volumes up 4 times when compared to the third quarter of 2021, and now representing close to 3 percent of our ocean volumes, demonstrating that there is a clear demand signal from our customers for green logistics products.”
Skou believes the company has a credible and tangible roadmap to meet its decarbonization goals in 2030 and 2040, and just as importantly, help its customers to meet theirs.
The container shipping sector, overall, has been at the forefront of the shipping’s decarbonization efforts, as industry majors such as CMA CGM, and most recently COSCO reveal orders in vessels powered by methanol as one of the most promising fuels of the future. Owners from the bulk and tanker shipping sectors have been more on the sidelines waiting for the right solution to emerge.
Methanol has a number of benefits when compared to other zero-carbon options being considered, the most notable being its maturity from a technical perspective, i.e., onboard storage solutions and vessel designs as well as practical advantages in storage, handling, and its carbon intensity reduction potential.
Its key benefits also include its density, which doesn’t affect the load capacity of ships.
However, the cost of running a big containership on methanol is considerable. As explained recently by Dr.Martin Stopford, a ship that burns 200 tons of heavy fuel oil per day would need 400 tons of methanol per day since methanol has 50% lower energy density. To produce 400 tons of methanol, 36 offshore wind turbines are needed which costs around $1 billion with $100k per day to run.
Maersk reported strong Q3 results with higher earnings in its three main businesses; Ocean, Logistics & Services and Terminals, compared to the same quarter last year.
Revenue increased by 37% reaching $ 22.8bn, and both EBITDA ($10.9bn) and EBIT ($9.5bn) increased around 60% compared to Q3 2021. Profit was $8.9bn for Q3 and $24.2bn for the first nine months. Return on invested capital (ROIC) was at 66.6 pct. for the past 12 months.
“Our third quarter result was another record and the 16th quarter in a row with year-on-year earnings growth. Ocean freight rates, which have driven the exceptional results we have delivered in 2022, were again up both year-on-year and compared to the second quarter. However, it is clear that freight rates have peaked and started to normalize during the quarter, driven by both decreasing demand and easing of supply chain congestion. As anticipated all year, earnings in Ocean will come down in the coming periods,” Skou added.
“Our overall transformation momentum remained very strong as we continue to grow our Logistics business rapidly. For the first time, revenue in Logistics exceeded $4bn in one quarter, and we expect to continue to outgrow the market in Logistics based on new customer wins.”
Maersk confirmed its full-year guidance for underlying EBITDA of around $37.0bn, an underlying EBIT of around $ 31.0bn and a free cash flow above $24.0bn. Given the unfolding economic slowdown, which is also expected to continue into the coming year, the company has lowered its outlook for the growth of 2022 global container demand to between –2/-4% decline from previously the lower end of the +1-/1% range.
As the company continues its transformation as part of a strategy to break away from the cyclicality of the container shipping business, Maersk anticipates that its logistics business would have a higher profit than its ocean business by the middle of the decade.
As the demand for shipping continues to drop, Maersk said that it was entering a challenging period in the years ahead mainly driven by geopolitical challenges and recession.
“With the war in Ukraine, an energy crisis in Europe, high inflation, and a looming global recession there are plenty of dark clouds on the horizon. This weighs on consumer purchasing power which in turn impacts global transportation and logistics demand. While we expect a slow-down of the global economy to lead to a softer market in Ocean, we will continue to pursue the growth opportunities within our Logistics business. As a trusted partner, we are ready to support our customers in rethinking their supply chain needs through what is likely to be a period of a more volatile business environment,” says Skou.
However, the company feels bullish on its ability to overcome the upcoming headwinds due to its strong balance sheet.
“We are prepared to weather the storm and we will emerge even stronger,” Skou added.