Maersk to Switch Away From Shipping

Danish conglomerate AP Møller-Maersk has delivered a damning assessment of the state of the container shipping sector by signalling it will switch investment to its other businesses.

Nils Andersen, chief executive, told the Financial Times that the group would no longer invest large amounts in Maersk Line, the world's biggest operator of container ships with a 16 per cent market share, and would instead focus on its oil, drilling rigs, and ports divisions.

"We will move away from the shipping side of things and go towards the higher profit generators and more stable businesses," Mr Andersen said. "What we are going to do over the next five years, we are not going to invest significant amounts in Maersk Line. We have sufficient capacity to grow in line with the market," he said.

"When we have taken that shift, probably more than 50 per cent of our capital will be tied up in these three other businesses. Maersk Line will then account for 25-30 per cent of capital. We will have four businesses of almost equal size."

The move represents a significant change in strategy for Maersk . The company and what it says about trends in global trade are seen as a barometer for the container shipping industry. It also reflects a frustration among senior management of Denmark's biggest company by sales at the volatility of Maersk Line's earnings.

In 2011, Maersk Line recorded a net loss of $540m, while the oil division posted a profit of $2.1bn, and drilling and ports earned $500m and $650m, respectively.

Although the container shipping business is expected to record a "modest" profit for 2012, analysts say the volatile outlook for the industry looks set to continue for at least another three years.

The weak global economy has left the industry struggling to make money as freight rates fluctuate wildly and regularly do not cover operating costs. The arrival of new tonnage, ordered largely during the boom years before 2008, has left the sector massively oversupplied.

"This year we don't expect the carriers to make money despite rate increases, and next year we also see the environment as very challenging," said Neil Dekker, head of container research at Drewry, a London-based shipping consultancy.

Maersk has set earnings targets for ports and drilling of $1bn a year each by 2018.

Maersk Oil has the target of increasing its production from 265,000 barrels of oil a day to 400,000 in 2020 and will increase its annual investment from $1bn-$3bn in recent years to $3bn-$5bn.

Dan Togo Jensen, an analyst at Handelsbanken, said: "They have got the financial power to do what they want. Whether it is the right business areas remains to be seen. But it makes sense to put the brakes on the container side."