Strong Q3 market offsets impact of cyber attack on Maersk Line results

Higher freight rates saw Maersk Line report a solid Q3 despite the impact of a cyber attack in July. Credit: Maersk
Higher freight rates saw Maersk Line report a solid Q3 despite the impact of a cyber attack in July. Credit: Maersk

Maersk Line sailed to a USD220 million net profit in the third quarter as a 14% increase in average freight rates offset the USD250-300 million financial impact of the cyber attack in June that dragged container volume down by 2.5% year-over-year.

The high cost of recovering services and reliability after the cyber-attack and increasing bunker costs saw the carrier adjust down its profit expectations this year to USD1 billion over the USD384 million loss in 2016. The previous expectation was that the carrier would make a profit “in excess of USD1 billion”. Maersk Line expects global demand for seaborne container transportation to increase by 4-5% this year.

The carrier’s parent, Maersk Group, reported a net loss of USD1.5 billion as the company was negatively impacted by an accounting impairment of USD1.75 billion in Maersk Drilling and discontinued operations and impairments of USD374 million in APM Terminals.

The development in market fundamentals was reflected in Maersk Line’s freight rate that increased 14% compared to the third quarter of 2016 but decreased 1.1% compared to the second quarter of 2017.

Rates fell steadily on the key east-west trades from July through the peak season, but remained well above the levels recorded in 2016. Maersk Line reported rising freight rates across all trades compared to Q3 2016 as east-west rates increased by 20%, north-south by 14% and Intra-regional by 7%. The increase on east-west trades was driven by Asia-Europe and trans-Pacific trades while the increase on north-south was driven by all trades.

Revenue of USD6.1 billion was 14% higher than in the third quarter of 2016, driven by the 14% increase in the average freight rate to USD2,063/feu that was partly offset by a 2.5% decrease in volumes to 2.6 million feu. Volume grew by just 0.6% on the headhaul trades and was more than offset by a decrease of 8.8% on backhaul routes.

The cyber-attack loomed large over the third quarter results and primarily impacted the carrier in July and August. Contingencies related to recovery from the cyber-attack resulted in a negative development on volume, utilisation, and unit cost performance throughout the quarter.

Unit costs at the carrier rose compared to the third quarter of 2016, rising more than 7% to USD2,135/feu. This was due to rising bunker fuel prices, lower utilisation, declining backhaul volume and the rate of exchange, and the impact of the cyber attack.

Bunker costs were up 26% compared to the second quarter of 2017, pushing up total unit cost by 4.1%. Bunker cost soared to USD809 million from USD591 million in Q2 while bunker efficiency deteriorated by 11.4% compared to the third quarter of 2016, driven by slot purchase agreements signed with Hamburg Süd and Hyundai Merchant Marine (HMM) in the first quarter of 2017, lower headhaul utilisation and less backhaul volumes.

Maersk Line’s average capacity increased by 10.7% compared to the third quarter of 2016, and 6.2% compared to Q2 2017, partly due to capacity being deployed to accommodate the slot purchase agreements with Hamburg Süd and HMM and ad hoc capacity added as a result of the cyber attack.

Maersk Line gave its assessment of the market where global container demand remained solid and grew about 5% in the third quarter compared to the same quarter last year. However, the carrier noted that while demand growth was high compared to the past couple of years, it was still lower than the first half of 2017 and growth was expected to slow further towards the end of the year.

Container volumes on East-West trades were driven by high imports into North America and Europe, while growth in Asia imports remained low. On the North-South trades the growth in container demand remained strong, Maersk said. Especially imports into South America and Africa continued to rebound after several years of low growth. For the full year 2017, Maersk expects global container demand to grow 4-5%.