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By Henry Ren (Bloomberg) Stubbornly high shipping expenses for businesses are getting sealed into contracts for the next 12 months, forcing companies to pass the extra costs on to consumers....
COPENHAGEN, May 17 (Reuters) – A.P. Moller-Maersk , owner of the world’s biggest container shipping company, is “100 percent certain” it can more than double freight rates in July despite market weakness that has seen prices fall by a third since March.
Shipping has taken a hammering in the past five years, hit both by the broad weakness of the global economy and a boom in orders for huge new freighters put in by major players just as the 2008 financial crisis hit.
The Danish group, whose Maersk Line vessels make up around 15 percent of world container shipping capacity, however, said its container shipping unit swung back to a $204 million profit in the quarter from a $599 million loss a year earlier, beating forecasts.
While those results benefitted from briefly improved prices, Maersk and other major players are now desperate to raise the industry’s traditionally volatile rates, after a fall in the past two months that left most trading at a loss.
Chief Executive Nils Smedegaard Andersen said he had “no doubt” Maersk Line would be successful in its plans to hike rates to $1481 per twenty foot container from July 1 from $731 currently.
Those spot rates, however, are traditionally only a basis for negotiation with clients and he also admitted that the outlook for the industry was bleak. The company cut its forecast for a rise in demand in 2013 to 2-4 percent from 4-5 percent earlier.
“To be honest, we just have to get used to the fact that these are harder times, and that there will be harder times ahead,” Andersen said at a teleconference.
Market capacity is also expected to increase significantly later this year, not least when the first of Maersk’s 20 new mega vessels is delivered by Korea’s Daewoo Shipbuilding & Marine Engineering.
The slump of around 400 dollars in spot rates – a 36 percent fall – since March had fuelled speculation that Maersk, which traditionally offers a conservative financial outlook, could be cutting 2013 expectations.
“The fact that they keep their outlook unchanged at a time when Asia to Europe freight rates are at an absolute low, is an important signal (for the full year results),” said Sydbank analyst Jacob Pedersen.
The group’s first quarter net profit fell to $790 million, down about 30 percent from the same period a year earlier which included $899 million in settlement for an Algerian tax dispute.
The result was above an average forecast of $726 million in a Reuters poll of analysts.
The company reiterated its overall group outlook for the this year’s net profit to be below last year’s $4.0 billion, and the result for its container shipping unit, Maersk Line, to exceed last year’s $461 million.
The improvement at Maersk Line countered a 73 percent drop in net profit at Maersk Oil to $346 million, hit by a falling oil price and lower production but ahead of forecasts.
The group’s shares rose 0.7 percent on Friday versus a 0.4 percent fall in the Copenhagen stock exchange. (Additional reporting by Shida Chayesteh, Stine Jacobsen and Ole Mikkelsen; Editing by Patrick Graham)
(c) 2013 Thomson Reuters, Click For Restrictions
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