Supply Chain Matters provides a further example of how global transportation carriers have benefited from the significant surge in shipping volumes as well as more leveraged use of technology and business practices to meter capacity availability.
In a prior Supply Chain Matters commentary, we highlighted financial performance headlines involving a sampling of five transportation and services providers representing different modes of transport services. In this posting, we highlight the financial performance of global ocean container market leader, Maersk.
Parent A.P. Moller-Maersk reported fourth quarter financial performance was headlined with a $1.1 billion net profit, compared to a $72 million loss in the year earlier period. Analysts were expecting a number in the range of $1.4 billion.
Earnings before interest, taxes, and depreciation (EBIDA) was $8.2 billion compared to $5.7 billion in the year-earlier quarter. Quarterly revenue amounted to $11.26 billion, a 16 percent year-over-year increase.
Full year 2020 revenues were reported as $39.7 billion with free cash flow of $4.6 billion during the year, a near doubling from the prior year. Profitability reportedly improved in all business segments particularly in the Ocean segment with EBITA of over 24 percent.
In its presentation to equity analysts, the carrier indicated:
“The COVID-19 pandemic significantly impacted our business, customer demands and global supply chains throughout the year and demanded a high degree of agility and flexibility in the operations. We delivered excellent, value creating results in 2020 with considerable improvement in ROIC and Free Cash Flow, driven by the significant increase in operational performance, particularly in Ocean and Logistics, leading to an underlying EBITDA of USD 8.3bn and by continued capital discipline.”
Ocean segment revenues in the fourth quarter were $8.3 billion compared to $7.1 billion in the year-earlier period. Full year 2020 revenues were reported as $29.2 billion vs. $28.8 billion in the year earlier period. EBITA margin in Q4 was 26.7 percent vs. 15.7 percent in the year-earlier period. Full year EBITA was reported as 22.4 percent vs.15.4 percent in the 2019 period.
Shipping volumes in Q4 increased 3.2 percent while overall volumes in 2020 decreased by 4.9 percent. This is the likely indicator of the effect of the lockdowns in China and other parts of Asia in the first half of 2020. London based Container Trade Statistics has indicated that industry shipping volumes increased 4.3 percent during the second half of 2020, including a 5.7 percent surge in the final quarter.
Management commentary indicated that supply chain bottlenecks and equipment shortages contributed $1.5 billion to EBIDA in 2020. Higher short-term freight rates with lower bunker fuel and operational costs contributed to profitability.
We would add that the industry itself demonstrated an unprecedented number of blank sailings (cancelled voyages) during the year, assuring that operational capacities were optimized. The presentation did note that service reliability levels declined in Q4.
Maersk executives provided an outlook that forecasted this year’s EBITA to be in a range of $8.5 billion to $10.5 billion compared to $8.3 billion in 2020. Free cash flow was forecasted to be above $3.5 billion compared to $4.6 billion.
Maersk CEO Soren Skou indicated his belief that freight rates would slip to more normal levels by the second half of this year. Further noted was that Q4-2020 profitability levels would likely extend higher in the current quarter. That is a significant statement given that Q1 industry shipping volumes have traditionally been lower because of the extended Lunar New Year holiday that occurs this month.
The carrier is anticipating a 3 to 5 percent volume growth in 2021, with most of that coming in the first half of the year. The current high volumes of global manufacturing and supply chain activity levels reflected in January 2021 PMI reporting, are clearly being impacted by ocean container availability bottlenecks and extended supplier lead times. Thus, from our lens, Maersk’s level of forecasted shipping volume could be considered optimistic for the first-half.
We should also share that the carrier distributed $1.3 billion to shareholders through dividends and share-buy backs for 2020 an upwards of 120 percent increase in per-share dividend is being proposed by the Board of Directors in March.
Despite all of this optimistic news, the company’s shares reportedly declined 7 percent on the initial report, based on the carrier’s outlook for 2021. The Wall Street Journal noted that Maersk shares gained 42 percent in 2020, the company’s best performance since 2005.
As noted in a previous blog on this thread, the metered capacity leveraging of the 2020 global supply chain demand and transport supply imbalances, significant bottlenecks and consequent eroded service levels often have a negative financial impact for manufacturers, wholesalers, and retailers. That leads to tougher decisions as to whether such higher costs can be adsorbed or pass along with higher prices of products and services.
Multi-industry supply chain and sales and operations planning team will need to maintain a keen focus on the implications of higher costs and continued bottlenecks and eroded service levels in global transportation during the first half of this year.
By the same token, retailers who continue to respond to greater Omni-channel online buying needs not only face the challenge of higher inbound transportation costs, but also increased parcel carrier transport, logistics and volume surcharge costs.
Teams should consider augmenting transportation planning, services and cost management with more sophisticated technology capabilities that more closely monitor these dynamic changes that are occurring and that can buffer the impact on product and business balance sheets. As we stated in one of our 2021 predictions, we anticipate that new product focused decisions will need to be made based on these trends of higher global transportation and logistics costs.
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