Morningstar | Maersk Spins Off Its Drilling Business, Signalling the End of the Oil & Gas Era
AP Moller Maersk is a Denmark-listed transport-based company. Following recent divestments of its oil & gas related operations, the group is now essentially composed of three business, Ocean, Logistics & Services, and Terminals & Towage.In 2016, the Ocean business posted its first ever loss, driven primarily by an almost 20% decline in freight rates on the prior year. Oversupply in the marketplace and weak demand, specifically in emerging-market routes, caused significant downward pressure on shipping prices. The longer-term picture has improved somewhat since then with the formation of alliances between the major shippers, the acquisition by Maersk of Hamburg Sud and the bankrputcy of Hanjin all contributing to a more rational operating environment, with the global order book for new vessels falling dramatically. As such, freight rates have been rising since 2017, however, progress here has been offset to a large degree by increased bunker fuel costs. As fuel costs stabilise and are effectively pased on to clients, we believe margins in this business will incrementally improve over time.Global terminal operation remains a consolidated industry, with the top 10 players controlling almost two thirds of global throughput and the top five controlling almost 50%. APM Terminals operates in the upper echelons of the industry, consistently ranking in the top five global operators, with the number of terminals it operates growing steadily over the past few years. Between 2010 and 2017, the company increased this number from 48 to 76. However, management has indicated that going forward, its focus will be on efficiency rather than growth; thus, we would not expect this figure to grow materially, and it may even decline over the next few years. Maerk's exposure to West African and Eastern European economies has hurt the business for the last number of years as throughput weakened on the back of lower commodity prices. However, as activity picks up in these areas we would expect capacity utilisation to return to historical average levels.A.P. Moeller Maersk is an international shipping company. Co.'s operating segments are: Container shipping and related activities which include global container services, inland transportation, manufacturing and repair of containers and container depots, and logistics and forwarding activities; APM terminals; Tankers, offshore and other shipping activities which include tanker shipping of crude oil, oil products and gas, offshore drilling activities and operation of land rigs, supply vessel activities with anchor handling and platform supply vessels, ferry services and door-to-door transportation in Northern Europe; Oil and gas activities; Retail activity; and Shipyards and other activities.
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