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Maersk Will Restrain Costs, Expand Logistics Services on Weak Shipping Outlook

by usiscc
November 16, 2019
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Maersk Will Restrain Costs, Expand Logistics Services on Weak Shipping Outlook
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A.P. Moeller-Maersk AS

is stepping back from buying new vessels as the Danish shipping giant focuses on controlling costs and targets its growth efforts to inland logistics rather than oceangoing trade.

“We are focused on our costs,” Chief Executive 

Søren Skou

said Friday, as the Danish company posted better-than-expected earnings for the third quarter despite declining revenue. “We have a strict focus on capacity and network capacity.”

That includes stepping back from an arms race that has seen several container lines in Asia and Europe order megaships with significantly more capacity per vessel than the biggest ships operated by Maersk Line, the company’s main container shipping unit.

Mr. Skou said in an interview that Maersk instead will focus its capital spending and strategic planning on efforts to build up its business beyond port-to-port ocean transport, expanding its logistics services business that provides more profitable long-term growth potential.

“We need to grow in acquisitions on land warehouses and customs house clearing services,” Mr. Skou said. “We have invested around $1 billion already on the land side supply chain and we are looking to put in hundreds of millions more over the next year.”

The effort has been three years in the making, but revenue from the what Maersk calls its Logistics & Services unit totaled $1.6 billion in the last quarter, a fraction of the $7.3 billion that came from shipping. Gross profit growth from Logistics and Services improved to 13.4% in the quarter.

Mr. Skou said he wants half of the company’s income to come from nonocean services over the next three years.

Maersk has around 70,000 customers at sea, with clients ranging from U.S. retail chains and car makers to furniture suppliers, electronics companies and clothing importers.

But less than a quarter of those customers use the company to move their goods from ports to warehouses and distribution centers, and its logistics infrastructure—around 100 inland cargo-handling locations around the world—is small compared with global logistics providers. Switzerland’s Kuehne + Nagel International AG, 

Deutsche Post AG

’s DHL Supply Chain of Germany and Switzerland-based Ceva Logistics—a subsidiary of French shipping competitor CMA CGM SA—each have hundreds of warehouses globally.

The company wouldn’t say how long it will stay away from the ship-buying market.

Finance chief Carolina Dybeck Happe said in an investor call that “there are no intentions now to invest in any large vessels.”

“We will, of course, at some point, need to replenish our fleet to maintain our competitive network,” she said. But “new vessel orderings in the years to come will be to maintain the competitiveness,” rather than to gain more market share in shipping.

Maersk, which moves around 20% of all containers, reported a net profit of $520 million in the quarter ending Sept. 30, up from $396 million a year earlier, compared with average analyst expectations of $359 million. Net profit attributable to shareholders totaled $506 million.

That came as overall revenue slipped 1% to $10.06 billion. Business at the company’s main shipping unit was flat as a 2.1% rise in volumes was offset by a 3.6% decline in average freight rates from a year ago.

Maersk expects box growth at around 2% this year, less than half the 4.5% recorded in 2018. The overall industry container fleet will grow by 4%, according to data by Braemar ACM Shipbroking in London.

The carrier estimates uncertainty from global trade skirmishes, including the U.S.-China trade war, likely reduced container trade by 0.5%-1.0% this year.

“Volume growth of 1.5% in the third quarter, which is traditionally the busy quarter leading into the Christmas trade, is a sign that the world is not spinning as fast as it has done for many years,” Mr. Skou said.

Write to Costas Paris at costas.paris@wsj.com and Dominic Chopping at dominic.chopping@wsj.com

Copyright ©2019 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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