Maersk Leverages Logistics Synergies
A.P. Møller - Maersk has published its interim report for the first quarter of 2017, highlighting an underlying profit of $201 million and increasing benefits from integration of its shipping and terminal businesses.
"We are starting to see synergies in Transport & Logistics, for example with Maersk Line increasing volumes to APM Terminals, improved collaboration between Maersk Line and Maersk Container Industry leading to significantly higher volumes and improved results, as well as cost synergies on Sales, General & Administration," says Soren Skou, CEO of A.P. Møller - Mærsk A/S.
The new strategic direction for the Transport & Logistics division to integrate the businesses is progressing as planned, says Skou, with expected synergies of up to two percentage points in return on investment capital (ROIC) improvement by the end of 2019.
In accordance with the strategy, Maersk Line increased volumes to APM Terminals in the first quarter.APM Terminals reported a profit of $91 million which was negatively impacted by declining markets in West Africa and rate pressure in a number of locations due to overcapacity. In line with the new strategy no new terminal projects have been pursued, and APM Terminals achieved a positive free cash flow of $88 million.
A key part of the growth strategy for Transport & Logistics is developing and introducing new digital products and services to customers. As examples to support these initiatives, Damco launched its digital freight forward platform Twill, and Maersk Line announced a collaboration with IBM on developing blockchain solutions to digitize supply chain documentation.
The agreement to acquire the German container shipping line Hamburg Süd from the Oetker Group has been approved by the companies' boards and is expected to generate annual operational synergies of around $350-400 million as from 2019. These synergies will primarily be derived from integrating and optimizing vessel networks and terminal capacity.
Market fundamentals continued to improve in the first quarter and demand outgrew nominal supply for the second consecutive quarter. Maersk Line is on track to deliver a result improvement of above $1 billion for 2017 compared to 2016, despite an underlying loss of $80 million in the first quarter, driven by a $381 million higher fuel bill. Both spot freight rates and contract rates have increased during the quarter, lately also on the North-South trades.
“Maersk Line is focused on restoration of profitability and maintaining market share in the next quarters, as industry fundamentals improve," says Skou.
The Transport & Logistics division expects an underlying profit above $1 billion for 2017. Due to gradual improvements in container rates Maersk Line continues to expect an improvement in excess of $1 billion in underlying profit compared to 2016 (loss of $384 million). Global demand for seaborne container transportation is still expected to increase two to four percent.