Maersk sees further squeeze from overcapacity

COPENHAGEN (Reuters): Danish shipping and oil group A.P. Moller-Maersk A/S said last week its 2011 net profit fell by more than a third, hit by losses in container shipping, and warned 2012 group results would see a further decline.

The group said its 2012 oil and gas result would be significantly below the 2011 result and that its key container shipping division would continue to be loss-making.

“Overall...2012 will be a challenging year. On the shipping side we are in a supply demand challenge...and on the oil and gas side we are in the midst of declining production,” Chief Financial Officer Trond Westlie told a webcast.

Maersk, sometimes seen as a barometer of world trade as its fleet of 645 vessels makes up roughly 16 percent of total container shipping capacity, said it would cut its growth ambitions for the shipping segments in 2012.

“We are comfortable with the market share we have right now,” Westlie said.

Westlie told Reuters the group could remove tonnage from the market to help fight overcapacity.

“There will be overcapacity in the market, especially Asia-Europe. That must be dealt with,” Westlie said. “We have started to deal with it by reducing capacity.”

Westlie presented the group’s results as Chief Executive Nils Smedegaard Andersen is recovering from heart surgery which has kept him away from work since Jan 2. Andersen is expected back at the end of the first quarter.

Full-year net profit at the conglomerate fell to 18.08 billion crowns ($3.3 billion) from 28.22 billion a year earlier, narrowly beating analysts’ average estimate of 17.29 billion in a Reuters poll.

The result was in line with the group’s November guidance for a 2011 profit of between $3.1 billion and $3.5 billion, though analysts’ estimates ranged widely from 13.61 billion to 20.89 billion, reflecting the difficulty in forecasting the crisis-hit shipping business’s results.

Revenue from the container division accounted for 45 percent of total group revenue in 2011, while the oil and gas division accounted for about 21 percent.

Net profit from the oil and gas division accounted for 61 percent of group net profit, while the container division made a net loss of 2.87 billion, exceeding an average 2.00 billion loss forecast by analysts.

“Overall, the loss in the container division is bigger than expected,” said Sydbank analyst Jacob Pedersen. “What compensates for that are the numbers from the oil division, where earnings are considerably better than expected.”

Pedersen said it was a big surprise that Maersk forecast a drop of a fifth in oil and gas production.

The group said it expected oil results in 2012 to be significantly below the 2011 result, owing to a 20 percent drop in its oil and gas production to around 265,000 barrels of oil equivalent per day at an average oil price of $105 per barrel.

On the shipping side, the global financial crisis has hit world trade and demand for cargo, depressing freight rates and causing shipping losses largely due to a glut of capacity built during the boom years.“Freight rates started the year at a reasonable level, but decreased throughout the year as large amounts of new tonnage was delivered,” Maersk said. “Overall freight rates were 8 percent lower than in 2010 and this, combined with 35 percent higher bunker prices, reduced margins considerably,” it said.













Maersk, whose major container shipping rivals include privately owned Switzerland-based Mediterranean Shipping Company (MSC), privately held French group CMA CGM, China’s COSCO and Singapore’s Neptune Orient Lines (NOL) , said its transported volume increased by 11 percent, greater than the market as a whole, so it gained market share.

Ten days ago, Maersk Line announced it would cut capacity on Asia-Europe routes by 9 percent to combat low freight rates, a move that analysts have called a strategy shift for Maersk, which had earlier tolerated losses.