The AP Moller-Maersk Group’s recent moves to sell over $4bn of non-core and under-performing assets begs the question of where the money will be re-invested, and its likely impact on existing market forces within the container shipping industry. Maersk Line already enjoys enormous economies of scale within the sector, so, should the cash be ploughed back into providing even more competitive services, its cash strapped adversaries will be quaking in their boots.

Although Maersk Oil is currently the most profitable part of the A P Moller-Maersk Group, APM Terminals and Maersk Line are also likely to be big recipients of the cash generated by its recent sale of non-core assets. The former because of its profitability, and the latter to protect its dominant market position within the liner industry. Maersk Line also accounts for around half of APM Terminal’s volumes.

APM Terminals, the Group’s container terminal business, provides a good profit margin and one of the best Return on Invested Capital (ROIC) in the group (see below table of Group financial results) so the money it will receive is only natural.

Table 1
AP Moller-Maersk Group: Financial Results, Jan-Sep 2013

Figure 1
Financial Performance of Main AP Moller Maersk Group
Business Units (Jan-Sep 2013)

This is especially relevant at this time given that APM Terminals has a large number of projects on the go. The company’s business model is focused primarily on higher growth emerging markets, with emphasis on developing greenfield, deep-water facilities serving gateway traffic on a multi-user basis, along with the expansion of existing facilities. The company currently has 7 new terminals under development, as well as expansion projects at no less than 16 existing terminals.  All but 4 of these 23 developments are in emerging market locations.

Table 2
APM Terminals: Number of Development Projects, 3Q 2013

But it is Maersk Line that is likely to have its eyes on a good part of the available cash. The Group’s liner shipping division represents the lion’s share of invested capital (see below graphic) and whilst its profitability and ROIC is below the Group average (and stated ROIC ambition of at least 10%), it is also where the Group has most to lose/protect.

Figure 2
A.P. Moller Group Invested Capital, 2013 ($bn)

It is common knowledge in the industry that MSC’s fleet and orderbook, when including intended leased and chartered tonnage, will bring the line to a position before long where its overall fleet is as large as Maersk Line’s or possibly bigger. It is highly likely that Maersk Line will want (and need) to widen the gap again with MSC to maintain competitive edge –  not simply for the kudos of maintaining market share and the “world number one” title, but to seek further operating cost reductions and to ensure that the overall fleet has the right balance of ship sizes.

For example, the 11,000 teu+ size range, all of Maersk Line’s owned vessels are (or will be) in the 15,000-18,000 teu bracket.  Compared with MSC, Maersk has a strong position as far as the very largest ships are concerned, but appears to be lacking vessels in the 13,000 teu New Panamax size and may need to invest in such ships as a result – depending on its planned use of the widened Panama Canal after the end of 2015.

Figure 3
Owned Vessels Over 11,000 teu on Order and Operating (Number of Ships)

View

Besides the Group’s highly profitable oil and gas exploration and production related businesses, APM Terminals has a strong case to receive a good slice of the recently raised cash from non-core asset sales. However, Maersk Line is also likely to obtain at least its fair share, in order to maintain competitive edge, fleet balance and its leading position in the industry.