Maersk raises 2012 outlook on freight rate recovery

COPENHAGEN (Reuters): Shipping and oil group A.P. Moller-Maersk raised guidance for 2012 earnings last week on prospects of a further recovery in container freight rates after its Maersk Line swung back to profit in the second quarter.

The global shipping industry has been hit by weak demand due to the world economic slowdown and an oversupply of vessels in the last four years, but Maersk said freight rates had risen and it expected higher average rates in the second half of the year.

• Forecasts 2012 net result slightly above 2011
• Q2 net profit $965 m vs forecast $994 m
• Sees “modest positive” 2012 result for Maersk LineThe Danish conglomerate’s net earnings fell from the second quarter last year but the difference was mainly explained by a one-off $700 million gain a year ago from its sale of supermarkets in the UK.

Group net profit fell to $965 million in the second quarter from $1.57 billion in the same period last year, missing an average forecast of $994 million by analysts in a Reuters poll but coming within the range of estimates.

“The important thing is that Maersk Line turned profitable,” Chief Executive Nils Smedegaard Andersen told a conference call.

Maersk Line, a barometer of world trade as its fleet carries more than 15 percent of all seaborne containers, swung back to an operating profit of $227 million in the second quarter from a loss of $95 million a year earlier.

Although Maersk Line’s operating profit missed the average forecast by analysts of $439 million as contract freight rates lagged a rebound in the spot market, analysts said the improved outlook outweighed that disappointment. “The result is positive. They deliver the profit we had expected both for Maersk Line and for the group, and we got the upgrade we had expected,” Alm. Brand analyst Jesper Christensen said. “That overshadows all else today.” “When you read in a bit more detail, Maersk Line disappoints on the rate level which was a little lower than expected.”

Maersk Line’s average freight rates increased by 4.2 percent in the second quarter from a year earlier and by 14 percent from the first quarter, the group said.“We have a slower increase in our average rates than you see in the market, and particularly in the spot indexes,” Andersen said, adding that Maersk Line has a mix of spot market activity, three-month and yearly contracts in its Europe-Asia trade. “It’s the yearly contracts that are giving us trouble,” he said. “So we feel that, even if spot rates peak now, there is room for us to improve rates.”

Despite the recent increases, freight rates remain significantly below 2010 levels, Andersen said, adding: “We will work hard to get closer to those (2010) rate levels.”

Some analysts have worried that rates could drop again before long since container freight volumes - largely the transport of consumer goods from television sets to clothing and food - are uncertain as the global economy sputters.

But Andersen told Reuters that rate increases implemented so far were “absolutely sustainable” and rates would rise further.

A.P. Moller-Maersk said it expected group net earnings in 2012 to be “slightly above” last year’s $3.4 billion result, having previously predicted a slight drop.

It said it expected Maersk Line to reach a “modest positive result” based on higher freight rates instead of an earlier forecast of a “negative up to neutral result” despite the euro zone crisis affecting container trade into Europe.

“Global demand for seaborne containers is expected to increase by 4 percent in 2012, but with declining inbound European volumes,” the company said, lowering its view of demand growth from an earlier 4-6 percent.

Oil and gas earnings, hit by lower production in the second quarter, fell less than expected and Maersk stood by its earlier guidance of a flat result for the Maersk Oil division this year.