Maersk’s profit tumbles on weak freight rates, low oil prices

Danish shipping-and-oil company A.P. Moeller-Maersk A/S said third-quarter profit plunged 43% as sustained weak freight rates and low oil prices continued to batter its performance.

Maersk’s shares sank as much as 9% on the news Wednesday. Investors fear the worst isn’t yet over in the shipping industry—the company’s biggest market, which is struggling to emerge from the deepest down-cycle in 30 years.

Maersk Line, the group’s shipping unit and the world’s biggest container operator, swung to a loss of $122 million, from a $243 million profit a year ago.

Net profit for the group dropped to $429 million from $755 million a year earlier, as revenue fell 9% to $9.18 billion. Analysts forecast a profit of $496 million and revenue of $9.39 billion for the quarter, according to FactSet estimates.

Maersk kept its full-year profit guidance at below $1 billion, significantly lower than last year’s $3.1 billion, due to developments in the global economy, container freight rates and weak oil prices.

“The result is unsatisfactory, driven by low prices,” group Chief Executive Soren Skou said. “Maersk Line for the second quarter in a row reported a loss due to continued low freight rates, [which are] down 16% year-on-year.”

The company did, however, outperform the market. It said the container volume it shipped for the quarter was up 11% on year compared with between 2% and 3% for the industry.

Maersk Line moves around 15% of global seaborne freight and is seen as a barometer of global trade.

Container ships move 98% of the world’s manufactured goods, from iPhones and toys to designer dresses and heavy machinery. But slowing global trade and a glut of shipping capacity in the water, estimated at 30% above demand, have pushed freight rates to levels barely covering fuel, driving most operators deeply into the red.

Global trade is forecast to grow by just 1.7% this year, marking the slowest pace since the 2008 financial crisis, according the World Trade Organization.

Freight rates have averaged less than $700 a container a month since the start of last year on the benchmark Asia-to-Europe trade route with the break-even point at $1,400. Shipping executives estimate the top 20 operators will post combined losses of as much as $10 billion this year.

The downturn has prompted a rare wave of consolidation among the industry’s top 20 operators and so far pushed a handful of companies out of business. Korea’s Hanjin Shipping Co., the world’s seventh biggest player, filed for bankruptcy protection in August. Maersk said last week it will be chartering six of Hanjin’s biggest ships.

“Maersk Line continues to face challenging market conditions and as a testimony to the situation the container industry saw its first major bankruptcy in 30 years,” the company said.