Wednesday 21 August 2019

Share Watch: Eco changes and trade war may rock the boat for Maersk


Stock picture of Maersk containers on a ship (Andrew Matthews/PA)
Stock picture of Maersk containers on a ship (Andrew Matthews/PA)

John Lynch

Mention the words 'international trade' to a TV news producer and he/she will reach into their bag of cliché shots and produce long-tracking images of quaysides piled high with metal containers stretching far into the distance.

Maersk is the logo you will see on these containers because the Dutch group is the largest shipping and ports group in the world, with a remarkable 15pc of the market for sea freight which, in turn, accounts for 90pc of world trade.

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The TV people are right in portraying Maersk's container as one of the enduring symbols of global trade. But the container shipping business is changing shape. It is featuring significantly in the eco debate and investors are having second thoughts.

Maersk's fleet travels every shipping lane in the world, operating in 130 countries. Someone worked out that the average distance a container ship travels each year is equivalent to three-quarters of the distance to the moon.

Few groups have undergone as radical changes in recent years as Maersk and it is being done for a good reason. The transformation started three years ago, which effectively changed the company from a conglomerate to one focused solely on container transportation, logistics and ports. In 2017 it offloaded Maersk Oil, its second-largest business which generated 25pc of its profits, and sold it to Total for $7.5bn (€6.6bn).

Earlier it merged its salvage business with a Houston-based group and sold off its tanker business. The group has also decided to float its oil drilling operation with a separate listing on the Copenhagen stock exchange. After the spin-off Maersk will have completed $18bn in transactions. In parallel with the separation of its various businesses, it recently acquired Hamburg Sud which will strengthen its shipping unit. But there is a reason for the hectic repositioning as the shipping industry is a major polluter. One analyst has estimated 200 large ships produce as much sulphur as all the cars in the world. Refiners have been producing high-quality petrol for cars but the worst bits of the barrel end up in ship engines. From next year ship owners must reduce greenhouse gas emissions.

The rules will have a sizeable impact on Maersk and experts suggest the changes will add $2bn extra in costs.

However, the company has been active, and wants to get to net-zero emissions in just three short decades without using carbon offsets.

"In order to be able to decarbonise in 2050, we need to be able to put out a zero-carbon vessel that is commercially viable by 2030," the company, which is seen as a leader in the green wave, said.

Container shipping is at the heart of the new and old Maersk. However, the outlook for the industry and its profitability is in a state of flux. The new tariff war between the US and China is starting to cause considerable uncertainty and container demand is half of last year's growth. This escalating war will have an impact on the fragile industry. Maersk's profitability is no longer best-in-class as it has been struggling with the cost side.

Last year the group, valued at €21bn, reported revenues of €5.3bn, up 26pc. Container shipping accounts for more than 70pc of revenues and was up by almost a third on the previous year, driven by the Hamburg Sud acquisition. Logistics and terminals revenue made up the remainder. Operating profit was €540m, the container business accounting for four-fifths of the total. Maersk's shares trade at only half that of its high four years ago.

While the group reduced debt last year, its credit rating was adjusted down and as a result it is holding back any large acquisitions.

Analysts and investors have welcomed the new concentration on shipping, ports and logistics over the sprawling conglomerate.

However, with the escalating trade war Maersk is facing a slowdown which could hurt its business and shares.

Nothing in this section should be taken as a recommendation, either explicit or implicit to buy any of the shares mentioned.

Irish Independent

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