Danish Shipping Giant Maersk Posts Record Profits for 2010

by Devapriyo Das, Gunnar Blaschke

Shipping and container giant A.P. Moller-Maersk registered a profit of 28.2 billion Danish kroner (5.18 billion U.S. dollars) for 2010, the company announced in its annual financial report Wednesday.

The results, a record high, marked a turnaround for the company which registered a 5.48 billion Danish kroner loss in 2009 (approximately 1 billion dollars) when the global container shipping business was hit by the financial crisis.

The company posted profits in its oil and gas, drilling, and shipping terminals businesses, but losses in its tanker division, it said in a statement released with its financial results.

"The group delivers a strong 2010 result, and we are very satisfied," said Maersk Group CEO Nils S. Andersen. "We have increased our financial strength and are ready to make significant investments in our businesses."

However, it was unlikely that the 2010 results will be matched this year, the company said.

"The A.P. Moller - Maersk Group expects a result lower than the 2010 result," the company said.

ECONOMY OF SCALE

A.P. Moller-Maersk is the biggest container shipping company in the world, with investments in oil and gas, port terminals, drilling services, and supermarket chains. It is also Denmark's biggest company.

"The main reason [for this record profit] is that this company has been able to utilise economies of scale," said Martin Jes Iversen, an associate professor at Copenhagen Business School.

"It is already the largest container shipping company in the world and it has been able to use that market position to be extremely efficient and earn a lot of money," Iversen told Xinhua in an interview.

Iversen said Maersk's investments in the oil and retail sectors, as well as its focus on a "lean process," or organizational efficiency, allowed it to register massive 2010 profits.

In 2010, Maersk earned revenues of 315.39 billion Danish kroner (57.95 billion dollars), up from 260.33 billion Danish kroner (47.82 billion dollars) in 2009.

The 2010 results were influenced by a recovery in the global container shipping business, which was riding a rise in world trade; a rise in the company's competitiveness; and by cost saving measures, Maersk said.

The results met profit expectations announced by Maersk in November 2010.

"The most fascinating thing is that it is only one year ago that they had many difficulties, in particular with their container business," Iversen said.

Profits from the company's freight and container operations totaled 2.6 billion dollars in 2010, marking a 5-percent increase in freight volume from 2009 levels.

FUTURE OUTLOOK

Maersk Group expects a 6 to 8 percent rise in global demand for seaborne containers in 2011, with a particular rise in freight volumes on the Asia-Europe trade routes. However, it does not expect 2011 container activities' results to reach 2010 levels.

"The group's container activities expect a satisfactory result but below the 2010 result," Maersk said.

The news follows a company announcement that Maersk has signed a contract with South Korea's Daewoo for 10 of the largest container ships, at a cost of 1.9 billion dollars.

"We can say that Maersk Group is aiming for a future where world markets, and trade exchanges between countries will continue to be on a high level," Iversen said, "They just ordered 10 very large ships. This is an order they would only make if they forecast future activities on the world economic scene."

OIL, DRILLING, TANKERS

Rising oil prices also helped Maersk post 1.7 billion dollars in profits in 2010 in its oil and gas operations. It maintains a share in 14 exploration and appraisal wells, and has obtained new licenses in Greenland, Brazil, the UK and Norway among others.

However, the company reported a declining production share "primarily in Qatar."

Higher exploration activity was forecast for 2011 but Maersk's share of oil and gas production was expected to decline to roughly 125 million barrels.

"Maersk Oil's result for 2011 is expected to be lower than in 2010 based on an average oil price around USD 90 per barrel," the company said.

APM Terminals, the company arm involved in establishing and maintaining shipping terminals, reported profits of 793 million dollars for 2010. It also reported an expansion of business in emerging markets, including Brazil and Liberia. The growth was set to continue in 2011, the company said.

Maersk Drilling registered a 399 million dollar profit, based largely on increased activity of its semi-submersible rigs.

However the company reported a loss of 118 million dollars in its tanker division, which it blamed on low tanker market rates for 2010. The scenario appears unchanged for 2011, with a loss again in the cards.