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Maersk Line records 40% drop in bunker costs... but loss of $151 million

15th August 2016

Decline in revenue was attributed to a 24 percent decline in average freight rates.

Maersk Line recorded what it described as an "unsatisfactory loss" in "challenging market conditions" of US$151 million during the second quarter of 2016, compared to last year's profit of $507 million during the corresponding period.

The shipping giant posted a loss of $114 million for the first half of the year, having achieved a profit of $1,221 million 12 months ago.

Revenue of $5.1 billion was 19 percent lower than in the second quarter of 2015. The development was driven by a 24 percent decline in average freight rates to 1,716 $/FFE (2,261 $/FFE), partially offset by a 6.9 percent increase in volumes to 2,655k FFE (2,484k FFE), Maersk said.

Container freight rates declined across all trades. North America and West Central Asia declined the most, but African, Oceanic and European trades were also notably lower. The decline in North American average rates was said to be due to increased competition, and also impacted by increased backhaul volumes at lower rates in the second quarter. West Central Asian, Oceanic and European trades were impacted by market imbalance whereas African trades were mainly impacted by weak demand. Recognised freight revenue was $4.5 billion ($5.6 billion) and other revenue was $539 million ($617 million).

Bunker prices and costs

The average bunker price paid by Maersk Line during the second quarter of 2016 was $194 per tonne. The figure was $141, or 42 percent, lower than the $335-per-tonne price recorded during the same period in 2015.

As a result, Maersk Line's overall second-quarter bunker costs decreased by 40 percent. Bunker efficiency improved by 1.8 percent to 957 kg/FFE, down from 974 kg/FFE.

Maersk Line's average bunker price during the first six months of the year was $186 per tonne, which represents a decline of $160, or 46.2 percent, on last year's $346-per-tonne price for the corresponding period. It is $129, or 41 percent, lower than the $315-per-tonne average for the whole of 2015.

Commenting on the issue of costs and bunker prices during the company's earnings call, chief executive officer Soren Skou remarked: "Just a few comments on cost [at] Maersk Line. Costs came in at $1,911 per FFE; that's the lowest level ever, and it's pretty remarkable to be below $2,000 per FFE. If we look back on the graph that is on the chart here, you can see four years ago in the second quarter of 2012, our costs came in at $3,100. So, it has been a remarkable cost journey over the last four years to get to $1,900 level today.

"Bunker cost, of course, is a big part of it. We also saw a significant decline in bunker prices year-on-year, 42 percent, and of course that helped a lot, but we continued also our journey in terms of improving our bunker efficiency, which came down another 3 percent year-on-year."

Fleet

By the end of the second quarter, the Maersk Line fleet consisted of 283 owned vessels (1,829k TEU) and 347 chartered vessels (1,314k TEU), with a total capacity of 3,143k TEU - an increase of 2.2% compared to the second quarter of 2015.

Idle capacity at the end of Q2 was 44k TEU (four vessels) versus 10k TEU (three vessels) at the end of Q2 2015. Maersk Line estimates that its idle capacity corresponds to around 4.7 percent of total idle capacity in the market.

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