A combined operating profit of USD 500 million in 2016 for the Maersk Group's fifth core business unit, APM Shipping Services, is possible, says CEO Morten Engelstoft. Adding that the goal is also ambitious.
But it is this very concrete ambition that his efforts will be judged by when the Maersk Group in a few years' time sits down to evaluate how the fifth core business has performed, and how Engelstoft - who also serves as CEO of Maersk Tankers - did on the job.
In terms of organization, Shipping Services amounts to almost nothing, as the unit only employs one person in addition Morten Engelstoft. The rest of the organization is spread across the four companies: Damco, Maersk Supply Services, Svitzer and Maersk Tankers. Compared to the four other core businesses, the four companies in APM Shipping Services differ widely - from logistics in Damco to towage activities in Svitzer and the offshore and tanker activities in Supply and Tankers.
Four different tasks
As such, Morten Engelstoft sees four different tasks for each company, he tells ShippingWatch.
"Maersk Supply Service is actually delivering fairly sound returns (18.5 percent in the 3rd quarter). The job here is therefore to grow the business and maintain performance. Right now, the company is impacted by the low oil price, which is pressuring the industry in general, as the oil companies are slowing down investments and thus jobs for subcontractors. But the company is covered well in the 4th quarter."
"Svitzer's towage activities are producing solid returns and winning many new and exciting projects, though Svitzer is challenged on its Australian business, which accounts for 43 percent of the company's activities, with increasing costs as well as competition. Svitzer has been negotiating with labour unions for some time now to find solutions. It's difficult, but the talks continue."
"Damco has lost money in 2013 and will also suffer a deficit this year. But 2015 will bring a profit. The company has launched a comprehensive program aimed at structural changes toward a new global structure with fewer regions, four instead of eight. The costs are too high, so something needs to be done about that as well. Right now, Damco is focused on this job, so we're in no way thinking about divestments, as has otherwise been mentioned."
"Maersk Tankers needs to achieve a solid profit in 2016. It's too ambitious to believe that the carrier can produce a ten percent return on invested capital that same year, but that's the direction in which we're working. The carrier is betting exclusively on product tanker and will perform a controlled fleet expansion in the years to come. The carrier must comply with the set three-legged strategy, which is not least focused on efficiency and cost reductions."
"We have a solid setup for APM Shipping Services, but the challenges differ greatly from one company to the next. We do have the potential to reach out return-targets for 2016. But it's ambitious," says Morten Engelstoft.
Increasing contract coverage
CEO Carsten Plougmann Andersen of Maersk Supply Service recently told ShippingWatch that the carrier has decided to increase its contract coverage, which is slightly bigger for 2015 than it was for 2014 at the same time last year (above 50 percent), and that the carrier has a similarly increased contract coverage for 2016. These changes are a result of the new conditions in the oil market.
Maersk Supply Services' newbuilding investments this year reached more than USD 1 billion, and the company is now completing its strategy for new investments in the coming years. This strategy will not come into play until 2015.
Damco CEO Hanne B. Sørensen is working to reach the goal for Damco, and the company is currently operating at a deficit. She told ShippingWatch in early October that the company will turn a profit next year:
"Our challenge has been the fact that while Damco has generally been an amazing growth story for the past five years, where the top line has grown 50 percent, the costs have not seen the same development in the sense that they've been too high. Other companies would envy our growth, but it's not so unusual that when you go through the kind of journey we've been on, there's a cost to be paid on the bottom line," said Hanne B. Sørensen, who took over the reins of Damco earlier this year, switching from the job that Engelstoft serves in today.
It was revealed last week that Svitzer is likely talking to competitor Titan Salvage about a potential collaboration. In any case, comments on the rumors did nothing to reject the notion:
"The result is that the industry is characterized by significant overcapacity and considerable costs, while our customers demand a comprehensive global state of readiness as well as the ability to handle bigger and far more complex tasks, with ships that are getting increasingly bigger," Svitzer told ShippingWatch, adding:
"Svitzer will always be ready to look at possibilities that could cement the company's position as market leader, but we decline to comment on rumors."
Morten Engelstoft explained on Friday that Maersk Tankers benefits from the current rebound taking place in the product tanker market, though he pointed out that he does not expect the good times to last.