Shipping And Oil Giant Maersk Optimistic On China Business

Danish shipping and oil giant Maersk Group is optimistic about business prospects in China despite the global trade downturn and question marks over the impact of the recent weakening of the RMB Yan, a company executive said Friday.

The group’s revenue in China has roughly 2X since Y 2009, which is the biggest origin market for its container shipping business, said Tim Smith, Chairman of Maersk China and Chief representative of Maersk Group North Asia, at a press briefing.

Business in the country is continuing to flourish, and Maersk sees opportunities as the economy moves toward consumption and service-led growth, as well as in the Belt and Road regional trade and infrastructure network proposed by China, Mr. Smith told reporters.

“China is big, and important, and that will continue to be the case in future,” he said.

He also called the devaluation of the yuan an “overall a good thing.”

“We don’t know the trend yet but it will boost China’s exports, and that’s helpful to our business generally,” he said.

China’s exports in July slumped 8.9% Y-Y, compared with a 2.1% increase in June. Imports dove 8.6%.

Smith described July as “not a typical month” due to the influence of commodity price fluctuations, and said he expected improvement in China’s exports in the coming quarter helped by the yuan’s depreciation.

Meanwhile, a weaker RMB Yuan will make imported goods more expensive and affect imports slightly, Mr. Smith explained.

However, he believes China’s imports will continue to grow as the economy matures to become more reliant on consumption, which will drive up imports.

Maersk Line, the group’s biggest business unit and the world’s largest container shipping company, reported lower quarterly profits as shipping overcapacity dented freight rates, especially in Asia-Europe trade.

Maersk Line’s underlying profits declined 8.1% Y-Y  to US$499-M in Q-2. But it outperformed the market by reducing costs and improving bunker efficiency, with return on invested capital reaching 10.1%.

The Maersk Group obtained US$1.1-B of underlying profits in Q-2, down 8.3% from a year earlier, according to financial results released Thursday.

Mr. Smith said the overall seaborne trade volume between Asia and Europe fell by an estimated 3% Y-Y in 1-H, but shipping capacity rose a lot more than that.

Due to overcapacity, spot rates for Chinese outbound goods have halved since early Y 2012, but Maersk still considers China its Key market, he said.

The group spends around US$2-B each year buying equipment, ships and other facilities in China, and is looking for opportunities to partner with Chinese companies to participate in the Belt and Road Initiative.

Mr. Smith said the initiative was a “very smart strategy” by China, as it will benefit Chinese companies in construction and foreign trade sectors, and Maersk also sees a lot of interesting opportunities ahead.

The group could work with Chinese firms to carry cargo exported from China, or in building terminals in Africa, for example, he said.

That was one of the reasons the group moved its China chair back to the mainland from Hong Kong last month, because it wants to invest more resources in the initiative to engage in it, Mr. Smith noted.

The shift also aims to catch up with the economic transition of China from a manufacturing hub of labor-intensive, not very high value-ended products, said Jens Eskelund, managing director of Maersk China.

“Wherever there’s a change, there’s opportunity,” he said.

Speaking of this week’s deadly warehouse explosions in the northern port city of Tianjin, Mr. Smith said it had a minor effect on the group’s facilities there, and there was no plan to move business to other ports at this time.

Maersk owns a terminal and joint venture with a Chinese firm in Tianjin, but the terminal is 5 km away from the blast site. Mr. Smith said 4 employees of the joint venture were slightly injured by flying glass and some containers might be damaged.

Have a terrific weekend.


Paul Ebeling

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