Mixed Q1 for Maersk’s Ocean segment

Maersk has published their Q1 2019 results, and they do appear to be a bit mixed.

Looking into the specific segment information for “Ocean” (rather than the full group), one finds the following.

Profitability at the EBITDA level has indeed improved from 9.6% in 2018 to 13.4% in 2019. This is of course in itself indeed a positive development.

However, digging into the details as well as comparing to Hapag-Lloyd raises some concerns.

At the EBITDA level, Hapag-Lloyd managed to improve from 8.3% in Q1 2018 to 16.0% in Q1 2019. In other words, the German carrier saw a much sharper improvement in profitability and in the process managed to overtake Maersk on this parameter.

At the operational level, Maersk further improved their fuel efficiency markedly. Overall they reduced the fuel consumption from 46.9 g/TEU*nm in Q1 2018 to a level now at 42.8 g/TEU*nm. They now burn 8.9% less fuel to move a container a certain distance. In these days of strong environmental focus, this is a very positive development not only in terms of financial cost savings, but also in the impact this has on reduced emissions.

But therewith also ends the positive developments. Looking at the commercial side, clear challenges do appear.

Overall Maersk lost 2.2% of their volume, thereby reducing their market share. But in the same period, they have reduced their fleet by 4.3%, hence in the aggregate improving vessel utilization. Unfortunately, a large part of the volume loss is on the backhauls, increasing the costs for empty repositioning.

Comparing this to Hapag-Lloyd, who in the same period have improved profitability more than Maersk, this development in volume and fleet is interesting.

Whilst Maersk’s volumes declined 2.2%, Hapag saw volumes increase 2.4%. Furthermore Hapag increased their fleet by 5.7% - in essence reducing vessel utilization in the aggregate in contrast to Maersk. Overall this should mean that Maersk’s utilization should have developed positively versus negatively for Hapag-Lloyd. In turn this would imply an expectation that Maersk’s freight rate development should be more positive than Hapag-Lloyd.

Yet despite this development, Hapag Lloyd saw average freight rates increase 4.9% where Maersk’s average rate increased 3.9%.

More concerning is the details for what Maersk calls north-south trades. The acquisition of Hamburg Süd was clearly a move to further solidify the position in these trades, yet volumes declined 5.6% in these trades. At the same time, Hapag Lloyd increased volumes in Latin America by 2.1% and their Europe-Africa-Oceania trade by 20.7%. And whilst volume development in general was weak in these trades, it does appear that Maersk is having some challenges in retaining the market share which came with the Hamburg Süd acquisition.

And this is perhaps the key concern coming out of the Q1 2019 results. In a historical context Maersk has strong track record for constantly improving operational efficiency, and the Q1 2019 result follows this pattern. But similarly, Maersk has a historical track record of having difficulties in retaining volumes from acquisitions, and the north-south developments seen versus Hapag Lloyd does raise this concern.