A Fee-ble Explanation

The CEO of the Danish shipping and oil conglomerate, A.P. Moller-Maersk, after revealing that his company had just posted its third-highest all time net profit in this year’s first quarter, went on to say that, “Now we’re on a winning streak, we’re very competitive.”

In an interview with Bloomberg Television Chief Executive Nils Andersen said,”We’re very pleased with the first quarter … parts of the container business did better than last year.

“The industry will have a tough second quarter, but I think that will lead to increasing rates during the quarter, so the second half should be better,” he added.

“We’re quite confident that rates will go up, if not for other reasons, because our competitors desperately need it.”

However …
– Maersk says it plans to put its five-vessel LNG fleet up for sale.

– Maersk Line is increasing its “piracy surcharge” to US $ 200 to $ 500 per FEU from $ 100 to $ 400 on cargo passing through the Gulf of Aden and the Indian Ocean.

– Maersk also declared a necessary increase in its “emergency risk surcharge” because of the rising costs of insurance, hardship allowances and rerouting vessels away from high-risk areas.

– “We have larger ships with more capacity, which isn’t needed, and that costs money,” Maersk daily operations chief Eric Nielsen told Dow Jones. “As a consequence, our capacity utilisation on these routes is very low.”

Sounds like Maersk should be losing money, right? So what gave Maersk its “third-highest all time net profit” in this year’s first quarter? Maybe Alphaliner, the Paris-based maritime consultant, can give us a clue.

In a survey of 12 carriers, Alphaliner found that June’s Bunker Adjustment Factors (BAF) will run from $ 703 per TEU to $ 832. Between 2008 and 2011 average fuel prices have increased 186 percent while the average BAF charge increased by 227 percent, Alphaliner said.

“BAF has remained a bone of contention for shippers who argue it is used by shipping lines to generate additional revenue (and “highest all time net profits”, maybe?) “Carriers maintain that it is used to recover additional bunker costs linked to unexpected fluctuations in the price of fuel.”

Put another way, “Carriers will pass on soaring costs to customers , but not savings from slow-steaming,” said Alphaliner. [So, is it theft and not profit that’s keeping those megaships afloat?]