A.P. Møller - Maersk A/S has become the latest shipping company to lower its full-year financial expectations as carriers have been encountering headwinds from higher bunker prices and volatile spot rates.
The Danish shipping conglomerate announced Tuesday it expects earnings before interest, taxes depreciation and amortization (EBITDA) for 2018 to range between $3.5 billion and $4.2 billion. This is a lower projection from May, when the company said it expected EBITDA for 2018 would range between $4 billion and $5 billion.
A.P. Møller - Maersk also said Tuesday it expects a “positive underlying profit” for 2018, although it did not give a specific range, compared to in May, when it said underlying profit was expected to be higher than the $356 million recorded in 2017.
Although A.P. Møller – Maersk isn’t scheduled to formally release its financial results through the second quarter of 2018 until Aug. 17, the company did reveal that its revenues for the first six months of the year reached $18.8 billion, while EBITDA totaled $1.6 billion. Revenues for the first six months of 2017 had totaled $18.6 billion and EBITDA stood at $3.8 billion.
“We delivered good progress in Q2 on revenue, volumes and unit cost across our business, and results improved from a weak Q1. Spot freight rates have restored after a significant drop in Q2, and volumes are growing in line with market,” A.P. Møller - Maersk CEO Søren Skou said. “However, we continue to encounter very high bunker prices, which we have not been able to get fully compensated for in freight rates, leading to an adjustment in our expectations for the full-year 2018.”
The average bunker price in the second quarter of 2018 rose 28 percent year-over-year, while the average freight rate slipped 1.2 percent, the company said.
Adding fuel to the fire, London-based shipping research and consulting firm Drewry believes carriers will struggle to recover much of the increase in higher bunker costs from emergency bunker surcharges, Martin Dixon, director of research products at Drewry said during a webinar last month.
In terms of spot rates, the Shanghai Shipping Exchange’s Shanghai Containerized Freight Index, which measures spot rate estimates from Shanghai to 13 regions throughout the world, had an aggregate reading of 890.52 this past Friday, down 0.8 percent from the first week of August 2017.
Drewry’s World Container Index, which measures spot container rates on eight major routes to and from the United States, Europe and Asia, stood at $1,697 per FEU on Thursday, up 6.6 percent year-over-year. However, year-to-date, the average composite index of the WCI stood at $1,395 per FEU, 8.5 percent below the five-year average.
Hapag-Lloyd of Germany and Japan’s NYK also have recently issued profit warnings.
In June, Hapag-Lloyd downgraded its 2018 profit forecast due to “an unexpectedly significant and continuing increase in the operational costs since the beginning of the year, especially with regard to fuel-related costs and charter rates, combined with a slower than expected recovery of freight rates.”
In July, NYK issued a profit warning for its current fiscal year, which began April 1 and runs through March 31, 2019, citing costs related to changes within its container shipping business, problems with its Nippon Cargo Airlines subsidiary and higher fuel costs.