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Shipping expert: Q3 report figures show Maersk’s long-term strategy

Earlier today, Danish shipping giant Maersk unveiled its Q3 interim report, which shows its revenue has increased by 68% compared to 2020. However, according to renowned shipping expert Lars Jensen, the figures in the report reveal how Maersk has a long-term strategy that isn't focused on market share.

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In the aforementioned interim report, published today,  Maersk CEO Søren Skou said:

“In the third quarter, A.P. Moller – Maersk once again set new records in the financial performance across Ocean, Logistics & Services and Terminals. Revenue was up 68% to USD 16.6bn compared to the same quarter last year, EBITDA tripled to USD 6.9bn and EBIT was up almost five times to USD 5.9bn.”

Mr Skou also announced that Maersk had acquired Senator International in order to expand the company’s air freight carrier operations:

“As a natural next step in expanding our multimodal offering, we today announce the acquisition of Senator International to expand our air freight carrier operations and the ordering of two triple seven aircraft to complement our existing fleet. By strengthening our footprint within air freight, we become a sizable player able to add even more flexibility to our customers’ supply chains and further support their needs for truly integrated logistics across ocean, air and landside.”

Other key figures listed in the report are as follows:

  • In Logistics & Services, EBIT increased to USD 194m (USD 100m), mainly reflecting the significant organic growth in revenue of 33%, driven by strong activity increase across all product families and strong commercial synergies to top 200 Ocean customers, including the impact from the acquisition of Visible Supply Chain Management.
  • EBIT in Terminals & Towage increased to USD 352m (USD 236m), with an increase in gateway terminals of USD 119m, driven by higher EBITDA partly due to higher storage income and higher results from joint ventures and associated companies, partly offset by higher depreciation.
  • Free cash flow increased to USD 5.3bn (USD 1.5bn), driven by strong cash flow from operating activities increasing to USD 6.6bn (USD 2.2bn), mainly offset by CAPEX of USD 610m (USD 280m) and higher capitalised lease instalments on vessels of USD 611m (USD 397m).
  • Return on invested capital (ROIC), last twelve months, increased to 34.5% (5.9%), as earnings improved, and invested capital increased slightly.
  • Net interest-bearing debt decreased to USD 3.1bn (USD 9.2bn at year-end 2020), as free cash flow of USD 10.9bn for the first nine months was partly used for share buy-backs of USD 1.5bn, dividends of USD 1.0bn, acquisition of companies of USD 787m and lease liabilities increased by USD 1.3bn. Excluding lease liabilities, the Group had a net cash position of USD 7.0bn (debt of USD 485m at year-end 2020).

Picking apart the figures from the report on LinkedIn, Lars Jensen of Vespucci Maritime noted how the numbers indicate that Maersk is more focused on long term contracts:

“The approach to contract cargo is worth noticing. They have 64% of the long-haul volumes on long term contracts versus 50% a year ago, and they have now 1.4 million FFE signed up in multi-year contracts. At the same time their average freight rate “only” increased 86.5% compared to Q3 2020 and their volumes declined -0.6% in the same period.”

Jensen also believes that Maersk is looking ahead to a point in time when the rate spike ends, and is thus implementing a strategy to “safeguard and stabilize rates and volumes for a longer period”:

“Compared to the extreme increases in the spot rate indexes, and a market growth year-on-year in Q3 of some 2.5%, Maersk’s performance appears to fall short. However, that would be a misinterpretation – those results appear more to be the outcome of a deliberate strategy to safeguard and stabilize rates and volumes for a longer period ranging beyond the current market spike – in effect foregoing a potentially much higher upside in a red hot market right now in expectation of avoiding as deep a drop once the market eventually turns.”

Moreover, Jensen says the figures in the report show that Maersk is not intent on grabbing extra market share:

“It is also worth noting that in their 2025 roadmap they do not plan to expand the size of their fleet compared to the present size. They will main 4-4.2 million TEU as a fleet size – which is essentially the same fleet size as they have had since 2018. Clearly their focus is on improving unit profitability – through logistics services – and not on pursuing market share.”

Finally, Jensen also observed the growth of Maersk’s logistics services arm:

“In terms of logistics services it should also be noted that in terms of physical volume they clearly had growth in Q3. Supply chain management volumes measured in cubic meters grew 18% compared to Q3 2020. Intermodal volumes are up 37% and airfreight is up 40%.”

Photo by Andrey Sharpilo on Unsplash