Higher freight rates saw AP Moller-Maersk report strong profits in the first quarter of the year despite flat revenues.
But the carrier expects container volumes to drop sharply in Q2.
“As global demand continues to be significantly affected, we expect volumes in Q2 to decrease across all businesses, possibly by as much as 20-25%,” said CEO Søren Skou.
The company now expects global container demand to contract this year due to COVID-19 lockdowns after previously predicting growth of between 1-3%.
Maersk Line’s organic volume growth “is expected to be in line with or slightly lower than the average market growth,” a group statement added.
AP Moller-Maersk revenues in the first quarter increased marginally to $9.6 billion, while Earnings Before Interest and Taxes (EBIT) totalled $552 million, up from $230 million a year earlier.
Skou said in a press conference earlier today that the container shipping alliance system had enabled lines to maintain improved pricing discipline as demand had slumped, not least through record blank sailings.
Shippers can expect more blanked sailings in the months ahead. “In the first quarter we cancelled 93 sailings and we plan, so far, for more than 130 in Q2,” said Skou. “And we will take further initiatives on capacity depending on how demand will be, so we match demand with supply and still serve our customers while we take out the cost.”
The company’s ocean shipping earnings from carryings on Maersk Line, the world’s largest box line, improved substantially during the first quarter. Maersk’s earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) increased by 25% year-on-year in the first quarter to $1.2 billion and the EBITDA margin increased to 16.3% (13.4%).
“The improvement, besides a positive result from the self-supply bunker strategy to mitigate increases in fuel cost from the IMO mandated switch to low sulphur fuel 1 January 2020 (IMO 2020), reflects the overall focus on profitability with higher freight rates compensating for the increase in fuel prices related to IMO 2020, and capacity management leading to lower handling and network costs mitigating the lower volumes related to COVID-19,” the statement noted.
AP Moller-Maersk’s Logistics & Services division also improved EBITDA by 42% to $68m in the first quarter and reported a margin of 4.7% as gross profit increased by 9% to $306m.
“The increase was due to higher profitability in intermodal and warehousing and distribution, partly offset by lower revenue and margins in supply chain management and sea freight forwarding,” said a statement.
Skou added: “In the first quarter of the year, AP Moller-Maersk again delivered profitable growth. Operating earnings increased by 23% year-on-year, and cash return on invested capital increased by 3.5 percentage points to 10.5%.
“The strong results were made during a quarter with sharp fuel costs increases derived from the industry’s switch to low-sulphur fuel and on the backdrop of a contraction in global trade due to lockdowns in most regions. From the beginning of the COVID-19 crisis our focus has been on the health and well-being of our employees, on supporting our customer’s businesses and the societies we are part of.”
Skou said the company’s strategic aim of becoming a digital supply chain company was validated during the first quarter as large parts of the global economy entered into coronavirus-induced lockdowns.
“The transformation of AP Moller-Maersk from a diversified conglomerate to becoming a focused, integrated and digitized global logistics company continues to be validated also in this quarter, as we are serving our customers, connecting and digitizing their supply chains, while also growing earnings and free cash flow in difficult circumstances.”
Skou added, “2020 is a challenging year, but as we proactively respond to lower demands and show progress in our transformation and financial performance, we are strongly positioned to weather the storm.”