Maersk returns to profit in 2017 despite cyber-attack

2/15/2018

A much-improved performance by Maersk Line helped return A.P. Moller-Maersk group to profit last year, despite the damaging effects of the cyber-attack in the third quarter that pushed the group’s freight division Damco into a loss-making performance.

Underlying profit for A.P. Moller-Maersk’s continuing operations rose to US$356 million, compared to a loss of US$496 million in 2016, with growing revenue and improving profit in “primarily driven by Maersk Line”. The profit consisted of US$1 billion related to the transport & logistics business, in line with guidance.  

Revenues of Maersk Line, excluding the recently acquired Hamburg Süd business, rose by around 15% to US$23.8 billion, positively impacted by an increase in the average freight rate of 11.7% to US$2,005 per FFE and by a 3.0% increase in volumes to 10.7 million FFE.

The underlying profit was US$521 million, compared with a loss of US$384 million in 2016, “positively impacted by the higher revenue and a unit cost (at fixed bunker price) almost on a par with last year”. Maersk said the unit cost was negatively impacted by the cyber-attack in Q3 as well as lower headhaul utilisation and less backhaul volumes. The total unit cost, which was 4.9% higher than in 2016, was further negatively impacted by a 43% increase in the average bunker price.

Freight rates increased across all trades, as East-West rates increased 19.3%, North-South rates increased 8.9%, and Intra-regional rates increased 2.4%. East-West freight rates were driven primarily by Europe trades, while North-South rates were driven by all trade clusters led by West Central Asia and Africa trades.

Maersk said the increase in freight rates was a result of a record low level in 2016. The reported 2017 freight rates peaked in Q2 2017, followed by a slowdown especially from the beginning of Q4 2017 and for the remainder of the year. As a result, recognised freight revenue ended at US$21.4bn, up from US$18.6bn in 2016.

Meanwhile, the group’s the group’s freight forwarding and logistics division Damco reported revenues of US$2.7bn, up by around 8%, driven by volume growth in both ocean and air freight as well as supply chain management. But Damco reported an underlying loss was US$36m, compared with a profit of US$31m in 2016, “negatively impacted by the cyber-attack as well as by lower margins and investments in products and digitisation”.

Søren Skou, CEO of A.P. Moller-Maersk, commented: “The past year was unusual for A.P. Moller - Maersk, characterized by a cyber-attack and operational challenges in a few hubs. We succeeded in growing the revenue by 13%, improving cash flow and increasing underlying profits from a low 2016 base. However, the financial result shows that significant improvements are still needed. 

“On the other hand, when we look at the strategic business transformation, progress throughout the year has indeed been satisfactory. We have taken the first steps towards the integration of our container shipping, ports and logistics businesses and our digital transformation is taking shape. At the same time, we have found new owners for part of the energy-related business units.”

He said highlights from 2017 include US$14 billion worth of M&A transactions, including welcoming Hamburg Süd to the A.P. Moller-Maersk family, agreement to sell Maersk Oil, sale of Maersk Tankers and Mercosul - the Brazilian container line - as well as the sale of the remaining 19% stake in Dansk Supermarked Group.

While Maersk Line and Damco were “severely impacted” by the cyber-attack in Q3, Maersk Line |recovered quickly, with strong volume growth and near all-time low unit costs toward the end of the year”. Stronger cooperation between Maersk Line and APM Terminals “generated the first integration synergies of around USD 0.1bn despite negative impact from the cyber-attack and operational challenges in key hubs”.

The group highlighted the acquisition of Hamburg Süd as “an important part of the Maersk growth strategy”. Together, the two carriers have around 19% global capacity market share, more than 4 million TEUs in container capacity. It reiterated that the Germany-based carrier will remain an independent brand, “with only operational aspects merging with Maersk Line”. 

Cost synergies from the merger are expected to be between US$350-400 million by 2019, primarily from integrating and optimising the networks as well as standardised procurement, the company confirmed.

"After a successful acquisition of Hamburg Süd, the integration is off to a good start, with both carriers growing volumes during the first months,” said Skou. “A smooth integration of Hamburg Süd remains a top priority for 2018.”

Maersk said its the transport & logistics business “made progress on the digital transformation of the core business, moving customer transactions online and digitising the way assets are operated,” adding: “A series of digital initiatives were launched during the year to accelerate the transformation of the industry from legacy paper-based, to digital customer-centric processes and services, enabling new product offerings. These include the launch of Twill, a digital freight forwarder, and Remote Container Management (RCM) for reefer customers; a partnership with Microsoft for cloud computing and digital product development; and a joint-venture with IBM to make trade easier for everyone, by digitising the exchange of information related to trade.”