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Profit At World's Largest Shipping Company Plunges On Collapsing Global Trade, Sinking Crude Prices

Tyler Durden's picture




 

Back in November, Nils Smedegaard Andersen, CEO of Maersk, the world’s largest shipping company, gave the world a reality check when it comes to global growth and trade.

“The world’s economy is growing at a slower pace than the International Monetary Fund and other large forecasters are predicting” Andersen told Bloomberg. "We believe that global growth is slowing down [and that] trade is currently significantly weaker than it normally would be under the growth forecasts we see."

That amounted to a harsh indictment of the IMF’s “built in optimism bias” (to quote HSBC), a bias which leads the Fund to perpetually revise down its estimates for global growth once it’s no longer possible to deny reality. “We conduct a string of our own macro-economic forecasts and we see less growth - particularly in developing nations, but perhaps also in Europe,” Andersen added. “Also for 2016, we’re a little bit more pessimistic than most forecasters."

His comments came on the heels of a quarter in which Maersk’s profits fell 61% Y/Y. On Wednesday, we got the latest numbers out of the shipping behemoth and the picture is most assuredly not pretty.

For 2015, profits fell a whopping 84% to $791 million from $5.02 billion in 2014. Analysts were looking for a profit of $3.7 billion. 

For Q4, the net loss came in at $2.51 billion, far worse than the Street expected. Shares of Maersk fell sharply in repsonse.

Not helping matters was Maersk's oil unit, which took a $2.5 billion impairment charge. "Given our expectation that the oil price will remain at a low level for a longer period, we have impaired the value of a number of Maersk Oil’s assets," Andersen said. The company needs $45-55 a barrel to break even. Obviously, we're a long way from that. 

The outlook for Maersk Line - the company's golden goose and the world's largest container operator - racked up $182 million in red ink last quarter and the outlook for 2016 isn't pretty either. The company now sees demand for seaborne container transportation rising a meager 1-3% for the year. "Freight rates in 2015 averaged a monthly $620 a container on the key Asia to Europe trade route, with the break even level at more than $1,000," WSJ notes. "In February the cost of moving a container from Shanghai to Rotterdam fell to $431, according to the Shanghai Containerised Index, barely covering fuel costs."

"Guidance," Citi wrote in a note this morning, "implies no respite for 2016": 

"2016 guidance for an underlying net profit significantly below 2015 (US$3.1bn) vs. US$3.4bn consensus. Maersk Line significantly below 2015 (US$1.3bn); Maersk Oil a negative underlying result (breakeven at an oil price US$45-US$55); APMT flat and lower in other divisions. Heavy CAPEX continues at c.US$7bn. We expect consensus to reflect guidance."

"Maersk Line expects an underlying result significantly below last year as a consequence of the significantly lower freight rates going into 2016 and the continued low growth with expected global demand for seaborne container transportation to increase by 1-3%," the company said in its annual report out Wednesday.

Here's a look at how swings in crude and freight rates affect the company's bottom line:

Addressing the global deflationary supply glut, the company said it's being "severely impacted by a widening supply-demand gap". "The demand for transportation of goods was significantly lower than expected, especially in the emerging markets as well as the Group’s key Europe trades, where the impact was further accelerated by de-stocking of the high inventory levels," Maersk noted. "In 2015, global economic conditions remained unpredictable and our businesses and long-term assets were significantly impacted by large short-term volatility."

Right. So as we've said on too many occasions to count, global growth and trade has simply flatlined and one look at the Baltic Dry certainly seems to suggest that there's no "recovery" anywhere on the horizon. Indeed we learned last month that in November, US freight volumes suffered their first Y/Y decline since 2012 and before that, the recession.

So once again, central bankers had better learn how to print trade or else it will be time to start "liquidating" excess inventory. And we mean "liquidating" in the most literal sense of the word...

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Wed, 02/10/2016 - 08:51 | 7164546 Latina Lover
Latina Lover's picture

Unlike the recovery lies peddled by our mainstream media whores,  the Baltic Index cannot be fudged in the same way as our government issued statistics.

Wed, 02/10/2016 - 09:36 | 7164641 drivenZ
drivenZ's picture

you're kidding right? I'm not saying it is being manipulated but the shipping industry has tons of shady people. It's full of Greeks, who are notorious for fudging statisitics. Also, there's two sides to the index. supply and demand. There is over supply. There's been oversupply for 8 years now and shipping companies have had no incentive to stop building ships. It's like OPEC with oil except on a longer(time wise) scale. Asset prices are low, new build prices are low, so to the extent possible companies keep building and buying ships so they don't lose market share. There is a distinct shipping cycle. It's called the shipping "cycle" for a reason. When the cycle turns, they'll make boatloads of money. 

Wed, 02/10/2016 - 09:39 | 7164698 Momauguin Joe
Momauguin Joe's picture

Except if the cycle doesn't "turn".

Wed, 02/10/2016 - 09:51 | 7164781 drivenZ
drivenZ's picture

It's called a cylce for a reason. It always turns. It can take many years due to the nature of the asset. It takes a few years for a ship to build which then has a life of 30 years.  

Wed, 02/10/2016 - 09:55 | 7164814 Lady Jessica
Lady Jessica's picture

What is the "cycle" nonsense of which you speak.
Central banking has put an end to all cycles. 

Wed, 02/10/2016 - 09:51 | 7164782 peddling-fiction
peddling-fiction's picture

@drivenZ

Good point.

The merchant marine is a difficult crowd.

Wed, 02/10/2016 - 09:41 | 7164721 open-range
open-range's picture

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... www.wallstreet34.com

Wed, 02/10/2016 - 10:39 | 7164994 iggenFlot
iggenFlot's picture

Are you rimming mom for that dough, or is she rimming you?

Wed, 02/10/2016 - 10:01 | 7164842 lakecity55
lakecity55's picture

VVVVVV SPAM VVVVVVVV

Wed, 02/10/2016 - 10:38 | 7164989 iggenFlot
iggenFlot's picture

The Baltic Dry Index is low by any measure, but it's not all because of low demand for container ships as routinely implied here. There's also a huge surplus of recently built ships that contribute to a supply glut. However, you won't hear that discussed much here because it interferes with the Zero Hedge "the world's going to hell in a hand basket" narrative.

Wed, 02/10/2016 - 10:59 | 7165098 Anopheles
Anopheles's picture

That's absolutely true, there's a surplus of ships, and the price for hire goes down.   Just like the price of oil has gone down, despite an increase in consumption.  It's just that supply increased faster.    

It sure doesn't fall in line with the "spread fear, not reality" motto around here. 

And the BDI is only for bulk dry goods, like iron ore, coal, grain, cement, etc

 

 

Thu, 02/11/2016 - 03:25 | 7169662 Monk
Wed, 02/10/2016 - 11:12 | 7165162 BinAround
BinAround's picture

Ufda!  So supply & demand sets prices?   Good call iggen.   

Thu, 02/11/2016 - 03:24 | 7169659 Monk
Wed, 02/10/2016 - 08:57 | 7164559 buzzsaw99
buzzsaw99's picture

Deutsche Bank is fine, and that's the only thing that really matters. /s

Wed, 02/10/2016 - 12:16 | 7165487 oklaboy
oklaboy's picture

Port of Houston: Monday and the morning of Tuesday there were no container ships unloading at the port, my longshoreman friends tell me, the first time ever that they can remember of that happening. And the warehouse union ( clerks and checkers) are out as far as one week, meaning there are no ships of consequence for the clerks and checkers to work, and the longshoreman to unload.  And an estimated inbound 60/1 container ratio, meaning 60 empties to one full container is coming into the port, with 55K? estimated empties sitting in the yard.

Wed, 02/10/2016 - 08:59 | 7164561 webmatex
webmatex's picture

A sinking ship... called the Titanic.

Wed, 02/10/2016 - 09:04 | 7164576 Bangin7GramRocks
Bangin7GramRocks's picture

Can't we just rumor away this bad news and add a solid 20% to the share price? Profits. Fuck all that!

Wed, 02/10/2016 - 09:06 | 7164578 jtmo3
jtmo3's picture

Bad news! Stawks soar!!!

Wed, 02/10/2016 - 09:07 | 7164580 TradingIsLifeBrah
TradingIsLifeBrah's picture

Who needs physical goods when you can trade stocks?

Wed, 02/10/2016 - 09:54 | 7164800 peddling-fiction
peddling-fiction's picture

@TradingIsLifeBrah

All hail the algobeast... /lol

Wed, 02/10/2016 - 10:31 | 7164966 GeezerGeek
GeezerGeek's picture

Virtual reality can't go mainstream soon enough. In VR I can become incredibly wealthy and control my world.

Wed, 02/10/2016 - 09:08 | 7164582 lester1
lester1's picture

Obama said the economy was awesome. Why would he lie to us?

Wed, 02/10/2016 - 09:09 | 7164586 iinthesky
iinthesky's picture

Why does the "economy" have to grow grow grow and never stop growing? I mean at some poimt, population being equal, shouldn't the ecinomy just "stabelize" for a long while?

Wed, 02/10/2016 - 09:35 | 7164680 CuttingEdge
CuttingEdge's picture

Unfortunately Ponzis need to grow or they become extinct.

Wed, 02/10/2016 - 10:41 | 7165001 Lorca's Novena
Lorca's Novena's picture

thats what the immigrants are for...

Wed, 02/10/2016 - 09:11 | 7164588 falak pema
falak pema's picture

BLACK DWARF OF OIL PATCH now calling on all members of Fossil's "royal" famiy.

Dick Cheney eat your Halliburton heart out !

http://www.marketwatch.com/story/falling-oil-prices-will-bankrupt-the-li...

How can Potus say growth in US will be 2.6% in 2016/2017 ?

What crystal ball and Astrological compass does he use ?

Wed, 02/10/2016 - 09:24 | 7164638 doubledutch
doubledutch's picture

Not a crystal ball,but the koran is Barry Soetoro's inspiration.

 

Wed, 02/10/2016 - 09:38 | 7164703 Stormtrooper
Stormtrooper's picture

He read it off the teleprompter so it must be true.

Wed, 02/10/2016 - 09:10 | 7164589 Cloud9.5
Cloud9.5's picture

What is interesting is that it has dropped below the bottom reached in 08 when the world economy had a heart attack.

Wed, 02/10/2016 - 09:28 | 7164655 Kaeako
Kaeako's picture

Not that interesting because things were very different back then, but China can't pull the sledge to infinity. We're in a period of readjustment now that the Chinese economy is maturing so volatility is to be expected.

Wed, 02/10/2016 - 09:11 | 7164594 wildbad
wildbad's picture

the motor just stopped..who could have seen that coming.

Wed, 02/10/2016 - 09:21 | 7164624 Arnold
Wed, 02/10/2016 - 09:20 | 7164616 Geezer Oil Trader
Geezer Oil Trader's picture

The website for Maersk's oil entity frequently refers to how "young" their people are.  That is a good thing in this case given how long it will take for oil prices to be of benefit to Maersk.

Wed, 02/10/2016 - 09:28 | 7164656 overide
overide's picture

 

 

We've only thrown a propeller blade!

Wed, 02/10/2016 - 09:30 | 7164662 Paul John Smith
Paul John Smith's picture

It's cute how he said the world economy is "growing" at a slower pace ...

(I don't really think it is growing at all)

Wed, 02/10/2016 - 10:24 | 7164942 GeezerGeek
GeezerGeek's picture

Not growing at all can be characterized as "growing at a negative rate." That certainly sounds more optimistic to me.

Wed, 02/10/2016 - 13:16 | 7165044 Anopheles
Anopheles's picture

And lots of people misread that "growing slower"as shipping volume is shrinking.  In fact shipping volume is still increasing, just not very quickly.

 

The low prices reflect there's a surplus of ships that have been built in the last couple years, in anticipation of that increase that didn't happen. 

Just like oil prices.  Oil has plummeted but the actual amount of oil used has increased.  Oil usage increased by 2.6% in 2015 and is projected to increase by 1.6% in 2016. 

Wed, 02/10/2016 - 09:38 | 7164704 Vendetta
Vendetta's picture

The CEO of Maersk is peddling fiction ...

Wed, 02/10/2016 - 09:53 | 7164791 peddling-fiction
peddling-fiction's picture

@Vendetta

Maybe he just is peddling chaos...

Thu, 02/11/2016 - 09:44 | 7170362 TheMerryPrankster
TheMerryPrankster's picture

peddling friction

time to oil the chains you can beleive in

Wed, 02/10/2016 - 10:07 | 7164750 _ConanTheLibert...
_ConanTheLibertarian_'s picture

How dare he speak the truth! He should be keelhauled using his biggest ship.

Wed, 02/10/2016 - 09:47 | 7164757 shovelhead
shovelhead's picture

Merkel should take advantage of firesale shipping rates and pack some containers full of rapefugees back to Turkey.

Everyone wins.

Wed, 02/10/2016 - 17:12 | 7167044 Bazza McKenzie
Bazza McKenzie's picture

Especially if they have an unfortunate shipping accident as shown in the pic.

Wed, 02/10/2016 - 09:55 | 7164811 cashtoash
cashtoash's picture

If they lose money shipping other people's cargo, why do they ship it at all?  what kind of business is this?

Wed, 02/10/2016 - 10:08 | 7164865 _ConanTheLibert...
_ConanTheLibertarian_'s picture

Negative business

Wed, 02/10/2016 - 10:18 | 7164910 gdogus erectus
gdogus erectus's picture

To go along with negative interest! I get it! It's bizaro-world!

Wed, 02/10/2016 - 17:11 | 7167030 Bazza McKenzie
Bazza McKenzie's picture

They're still making money before depreciation, and they're stuck with the depreciation whether they are carrying cargo or not.  They would be making a bigger loss if they stopped shipping, so it is a choice of the least loss-making option.

Wed, 02/10/2016 - 11:09 | 7165147 Funn3r
Funn3r's picture

Jeebus now that last photo  is what I call a really tragic boating accident 

Wed, 02/10/2016 - 11:10 | 7165152 MASTER OF UNIVERSE
MASTER OF UNIVERSE's picture

CEO Anderson is an exceptional business person for calling out the God damned International Monetary Fund, and that old dried up prune hermaphrodite Christine Legarde for their shit-for-brains-stupid economic forecasts that have been completely fucking off since Bear Stearns imploded. CEO Anderson would be a better fit at the IMF than Legarde. Furthermore, Legarde is a counterproductive hack pseudo-politician, and the useless twat has seen her best-before date expire. I have called for her ouster many times in the past, but this time Anderson makes it obvious to the whole World that this useless ancient bitch hack must go.

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