Maersk Hits the Ground Running in 2014

A.P. Moller-Maersk Group has hogged the headlines in the first week of 2014 with a rush of announcements that could prove to be game changers for container shipping.

First was the news that the Danish giant’s tanker unit, Maersk Tankers, had sold its fleet of 15 very large crude carriers to Antwerp-based Euronav for $980 million. This was followed by the announcement it was offloading a 49 percent stake in Danske Supermarked, Denmark’s biggest supermarket chain, and a 19 percent holding in department store group F Stalling for just over $3 billion. Then, Maersk Line said it was reviving the name of SeaLand, the U.S. carrier it acquired back in 1999, for an intra-Americas services to be launched at the beginning of 2015.

The first two deals are part of an ongoing pruning of a sprawling conglomerate with more than 1,000 subsidies to focus on four core businesses — Maersk Line, APM Terminals, Maersk Oil and Maersk Drilling. The SeaLand announcement was part of an ongoing rationalization of Maersk’s global network that has already delivered deep cost cuts.

The VLCC and supermarket transactions are part of a radical disposal program that still has some way to go to achieve CEO Nils Andersen’s aim of creating what he calls a “premium” conglomerate.

Maersk has already pocketed $11 billion from disposals since 2007, ranging from big deals like the $1.4 billion exit from the gas tanker market, to smaller ones like the recent sale of a 31 percent stake DFDS that it inherited in the $425 million sale of Norfolk Line, its North Sea short sea shipping unit, to the Danish ferry company a couple of years ago, and that of ERS, its pan-European rail container operation, to the UK’s Freightliner.

The sale of the retail stakes made sense. The stores generated around 17 percent of A.P. Moller-Maersk’s revenues but profit margins and return on capital invested were below the group average. And analysts question why Maersk has decided to retain 19 percent stakes in these two non-core businesses for at least the next five years. And why does Nils Andersen insist that the 23 percent stake in Danske Bank, Denmark’s biggest lender , is not for sale if he is focusing on the four core businesses?

Maersk probably doesn’t need the cash right now with net debt a modest 1.3 times earnings before interest, tax, depreciation and amortization and no acquisitions in the pipeline.

There’s little doubt about Maersk’s ability to ramp up earnings at three of its core units — APM Terminals, which is “well on the way “to hitting its annual $1 billion-a-year profit target in 2015, according to Andersen — Maersk Oil and Maersk Drilling.

In contrast, container shipping presents the biggest challenge, particularly to analysts who are perplexed by a chronically cyclical industry the behaviour of whose participants often seems to defy the economic rationale that drives other sectors.

But Maersk Line is already pulling ahead of the competition, posting a bumper $554 million profit in the third quarter when most of its rival sunk deeper into the red, cutting unit costs per 40-foot container by 13 percent and prompting Andersen’s boast that it “is now an industry leader in terms of profitability.”

And there’s more good news to come, with Macquarie Research predicting Maersk Line will gain much more than its partners MSC and CMA CGM if their P3 Network, scheduled to launch in the second half of 2014, gets regulatory approval, which now looks increasingly likely. The Danish carrier could cut costs by up to $1 billion on the key Asia-Europe trade because the average size of its vessels will increase by much more than those of its Swiss-Italian and French partners, according to the Australian analyst.

With an increasingly profitable profile, backed by the financial muscle of A.P. Moller-Maersk, Maersk Line’s vow to retain its leading 15 percent market share to avoid becoming “irrelevant in 10 years” is no empty boast. MSC and CMA CGM, its closest rivals, are pure container plays with no outside supports, and Hapag-Lloyd’s bid to become the number four carrier rests on agreeing on a merger with Chile’s CSAV or coaxing a recalcitrant Hamburg Süd to forge an all-German giant.

Maersk Line is hunkering down for a troublesome two, possibly three, years of overcapacity, sluggish trade growth and weak freight rates.

But 2014 could prove to be the year when the Danish carrier finally pulls ahead of the pack — for good.

Contact Bruce Barnard at brucebarnard@hotmail.com.

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