As the saying goes: “Never let a good crisis go to waste.”
Shipping giant Maersk has reported is best quarter ever, with the unprecedented surge in cargo demand due to Covid-19 and a commitment to long-term contracts driving performance.
The following article is an abridged version of the article first published by Freightwaves.
Record quarter across the board
The heightened focus on long-term contracts comes amid a period of historic freight-rate and cargo-demand strength. “It is the best quarter ever in ocean,” said Skou of Q2. “It is the best quarter ever in logistics. It is the best quarter ever in terminals. And it is the best quarter ever in terms of net profit for AP Moller-Maersk — by some margin.”
Maersk reported net income of $2.7 billion for Q1 2021 compared to $197 million in Q1 2020. This year’s first-quarter earnings were not far below earnings of $2.96 billion for the entire year of 2020. Group Q1 2021 earnings before interest, taxes, depreciation and amortization (EBITDA) was $4 billion, up 166% year on year.
Contract coverage details revealed
Maersk has now finalized 80% of its contract negotiations for this year, with the remainder to be signed in the coming weeks.
Long-term contract coverage will increase 20% versus 2020 and will account for around 6 million FEU in volume. Maersk said contracts would have a positive impact of $550 per FEU this year.
Importantly, of total contract coverage, 1 million FEU represents multiyear contracts. Skou explained that there are two types of multiyear contracts being signed: some with fixed rates and others with fixed rates for the first year and index-linked rates for the second and, in some cases, third year.
“We now have a fundamentally different approach to the way we provide our services to our customers,” said Maersk CFO Patrick Jany, referring to the long-term contract strategy.
The change locks in more revenue stability. The counterargument is that by decreasing spot exposure, Maersk is leaving some profits on the table in 2021.
Photo by Agustín García: Flickr
Demand boom drives bottlenecks
Skou also commented on extreme congestion and its causes. The takeaway for shippers: Don’t expect the capacity crunch to let up anytime soon.
“Customers are basically trying to do two things at the same time: cater to strong basic demand because of all of the stimulus packages and the savings that were going up over the last year and are now being consumed, and at the same time, replenish inventories that are too low. “That is driving very, very strong demand to the point where the ports are really not able to meet all the demand and we get bottlenecks.”
Ongoing Suez Canal fallout
The fallout from the Ever Given accident in the Suez Canal is not over yet, Skou added. “What the blockage meant was that our journey towards a more reliable network was halted in its tracks,” he said. “We had a total of 50 ships sitting around the Suez Canal, waiting for it to open up. That creates quite a mess in the network. Unfortunately, it will take a few months to restore the reliability of the network as a consequence of that”.
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