COPENHAGEN (Reuters): Danish shipping and oil group A.P. Moller-Maersk cut 2011 guidance for its core container business last week, as growth in demand for container shipping slowed amid the global economic slowdown and freight rates came under pressure.
The group, whose Maersk Line is the world’s biggest container shipper and a barometer of global trade, beat first-half earnings forecasts but said freight rates were under pressure and an expected second-quarter rate recovery had failed to emerge.
Prospects for a recovery in the global container shipping industry could be derailed if global economic turmoil spreads and consumer demand in Europe and the United States slides. But Maersk said volumes were holding up for the time being.
“The growing demand for container transport continued throughout the second quarter, but at a slower pace,” A.P. Moller-Maersk said in a statement, adding global fleet expansion outpaced demand growth, hitting freight rates.
Average freight rates, including bunker fuel surcharges, were 3 per cent lower in the first half of 2011 than in the same period of 2010 and 8 per cent lower excluding the surcharges.
“The group still expects a result lower than the 2010 result, as stated in the interim management statement in May 2011,” A.P. Moller-Maersk said.
Earnings this year will be lower despite a $700 million extraordinary gain from the sale of a UK supermarket chain, which is included in the full-year outlook.
“The group’s container activities now expect a modest positive result,” it said, downgrading its earlier forecast for a “satisfactory” result from container shipping.
Net profit at the conglomerate rose to 14.54 billion Danish crowns ($2.8 billion) in the six months through June from 14.16 billion in the same period last year.
The result beat an average expectation of 13.93 billion crowns in a Reuters poll of analysts, whose estimates ranged from 12.22 billion to 15.71 billion.
But first-half operating profit for the container shipping business dropped 69 per cent year-on-year to 2.33 billion crowns and undershot analysts’ average forecast of 3.51 billion.
Demand for seaborne containers is expected to grow 6-8 per cent in 2011, Maersk said, standing by its earlier forecast.
“We do not see signs that growth is declining, but there is nervousness in the market because some of our competitors have brought in very big ships and bought them when prices were at a peak,” Chief Executive Nils Smedegaard Andersen told Reuters.
“So obviously a lot depends on whether they are filled up,” Andersen said, adding some rates now in the market are below break-even for the sector.
The global container shipping industry, which rebounded in 2010 from a deep plunge in 2009, is facing new challenges from weak freight rates, demand uncertainty and rising fuel costs.
The average bunker price for Maersk’s container ships was 26 per cent higher in the first half of 2011 than in the corresponding period of 2010. “The pressure on freight rates reduced the group’s ability to pass on bunker price increases to the customers,” Maersk said.
The group’s oil and gas operations contributed the biggest portion of first-half profits, helped by higher oil prices, and beat analysts’ average expectation.
A.P. Maersk said it expected 2011 oil and gas results to be at the same level as 2010, based on an average oil price of $105 per barrel, upgrading its previous expectation of a lower result from the division.