Maersk Line Slumps to Q1 Loss as Rising Bunker Costs Outpace Freight Rate Gains

Maersk says higher bunker costs led Maersk Line to a $112 million decrease in profit in Q1. Image: Maersk

Maersk Line today posted a 1Q 2017 loss of $66 million, with a modest rise in freight rate said to have failed to offset surging bunker prices.

Despite the loss, there were several positives for the world's biggest box carrier who reported improving market fundamentals, a 10 percent increase in transported volumes thanks to improved demand and increased market share, while freight rates increased by 4.4 percent.

But the gains were offset by what it said was an 80 percent increase in the bunker price, resulting in a decrease in profit for Maersk Line of $112 million over the period last year.

Still, Soren Skou, CEO of A.P. Møller – Mærsk A/S (Maersk), remained positive on the prospects for the rest of the year.

"Maersk Line is on track to deliver a result improvement of above USD 1bn for 2017 compared to 2016, despite an underlying loss of USD 80m in Q1, driven by a USD 381m higher fuel bill," he said.

"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."

Maersk's overall operating expenses grew by $319 million to $7.3 billion, which the group largely attributes to an increase of $569 million in Maersk Line resulting from 80 percent higher bunker prices and a 10 percent increase in volumes.

The group says its larger operating expenses were partly offset by a decrease of $95 million in Maersk Oil and $74 million in Maersk Drilling, mainly resulting from cost saving initiatives across all cost categories.

"Focus on cost efficiency across all businesses remains high," noted Maersk in the report.

Maersk notes that its acquisition of Hamburg Süd is expected to provide the group with substantial revenue, volume, market share growth, and operational synergies.

The group reports that its revenue during the 2017 Q1 period increased by 5 percent, growing $424 million to $9 billion - a result that Maersk attributes to revenue growth in Maersk Line and Maersk Oil.

"A.P. Møller – Mærsk A/S delivered an underlying profit of USD 201m in line with same quarter last year. Whilst we cannot be satisfied with the overall profitability in the first quarter, the result is as expected," said Skou of the group's 2017 Q1.

Late last month, Maersk announced that the sale and purchase agreement for Maersk Line's acquisition of Hamburg Süd was approved by the boards of Maersk Line and the Dr. August Oetker KG (Dr. Oetker).