Troubles for Maersk continue to deteriorate

Following Moller-Maersk’s recent credit rating being downgraded by Moody from BAA1 to BAA2, with a negative outlook, and by Standard & Poor  to BBB, their problems continued to get worse.

maersk-shipperTwo of their offshore supply vessels, Maersk Searcher and Maersk Shipper, were being towed to a ship recycling yard in Turkey by another Maersk vessel, Maersk Battler. On 22nd December they were en route from Fredericia in Denmark. When they were approximately 60 miles off the French coast both vessels sank: at present no reason has been given for the loss of both vessels.

The vessels had been emptied of oil and fuel oil and flushed through, so Maersk stated that there was no danger to the environment. All crew were rescued and were safely on board the Maersk Battler. The French Coast Guard were notified of the incident and were investigating.


More cruise lines get approval from Cuba

In early December two more cruise lines announced that they had received permission from the Cuban authorities to include cruises to Cuba in their programmes for 2017. There are now six lines that have received approval: Norwegian and her sister companies Oceania and Regent Seven Seas, Royal Caribbean, Azamara and Pearl Seas. This development followed the announcement earlier this year that the Cuban authorities would be lifting their ban on Cuban-born people entering and leaving the island on commercial vessels.

norwegian-skyNorwegian Cruise Line initially stated that its first cruise would be from Miami to Havana, sailing on 7th March 2017. This has since been modified: Norwegian Sky will operate this 4-day cruise, calling at Havana and then the Bahamas. Five dates are planned, through May 2017, and the first bookings are already being taken.

Royal Caribbean has announced that its inaugural sailing to include Cuba will be on the Empress of the Seas, sailing from Miami in April 2017 on a 5-night cruise.

U.S. Carnival cruise ship Adonia, the first cruise liner to sail between the United States and Cuba since Cuba's 1959 revolution, arrives at the Havana bay Cuba, May 2, 2016. REUTERS/Enrique de la Osa

Currently the only  vessel  sailing to Cuba is Adonia, operated by  Fathom, a subsidiary of Carnival Corp. Adonia was running bi-weekly voyages but has struggled to find enough passengers. Carnival recently announced the trips would stop in Spring 2017.


Large floating drydock arrives at San Diego

ca-drydockThe largest floating drydock in California recently arrived at the San Diego shipyard of BAE Systems. It is 950 feet long. The company has planned a $100 million investment to develop the yard ahead of the anticipated development of the US Navy along the West Coast of the US.

The yard was towed in by the Polish tug Terasea Eagle. A team from BAE will take two months completing the final assembly and testing of the dock, after which it will be certified as ready for use. It is hoped to be fully operational by early in 2017, and already the first ship, USS New Orleans, is booked in for servicing.

The heavy lift vessel Blue Marlin passes through Astoria, Ore., on its way to Portland, Aug. 24, 2014. Coast Guard and Coast Guard Auxiliary personnel, working with local law enforcement, provided an escort for the ship to ensure the safety of boaters along the Columbia River. (U.S. Coast Guard photo by Petty Officer 3rd Class Jonathan Klingenberg)

Whilst this is big, the largest floating drydock in the United States is the Vigorous, at 960 feet long. This is based at Vigor Industrial’s shipyard at Portland, Oregon, and has an 80,000-ton capacity. It was designed to meet the requirements of the US Navy’s military standards as well as the American Bureau of Shipping. The drydock was delivered aboard the heavy lift vessel Blue Marlin in 2014.


Carnival reports
strong Q4 for 2016

dsc00679-fill-600x450Carnival Corporation reported on 20th December that the fourth quarter income for 2016 had increased from $270 million to $609 million, year on year. Ticket sales, onboard spending and bookings for shore excursions all rose significantly. Overall the corporation posted a record $2.8 billion profit for the full fiscal year 2016.

Arnold Donald, President and CEO for Carnival, stated that capacity would increase a further 2.6% next year. The CFO, David Bernstein, reported that bookings for 2017 were well ahead of 2016. The fourth quarter saw the introduction of Carnival’s Carnival Vista, Holland America’s Konigsdam and Seabourn’s luxury Seabourn Encore. Also in the quarter three new cruise ships were ordered from Meyer Werft, to be powered by LNG, two for Carnival Cruise and one for P&O.

156925Expenses were up on last year, with increases in payroll, fuel costs, food and overall operating costs affecting final profits. Donald reported: “We are anticipating another solid year in 2017… the underlying strength in out fundamental business leaves us well positioned to achieve sustained double digit return on invested capital”. It was agreed that China was a developing market, with a number of charters and sub-charters to be completed. Carnival was also actively looking to include Cuba in its programme, and had applied for authorisations for at least one of the Carnival brands to be approved by June 2017.


Maersk announces new strategy to split business

maersk-triple-e-containershipThe CEO of Moller-Maersk, Soren Skou, announced on 12th December that the new strategy for the company would be to separate its energy activities from the transport and logistics operations. His plan is to develop the transport area for containerships. At first glance this seems odd, given the recent rally in oil prices and forthcoming deals with OPEC to control global output.

The container business has seen a serious deterioration in earnings this year, with the slump expected to continue for some time yet. Maersk has introduced a number of cost-cutting measures this year, which have helped reduce its losses significantly, but for the new strategy to work effectively, much more will need to be done. Freight rates have risen slightly recently, which will help, but there’s no guarantee that rates will improve further in the near future.

The purchase of Hamburg-Süd reported here recently should help, too, but it is uncertain how quickly this will show in the books. The principal problem facing all companies in the containership market is that there is excess capacity available, with several new ships on order or nearing completion. Scrapping or mothballing many of the less-efficient vessels would help reduce this, but it seems uncertain which company will blink first and accept their losses are too much. Maersk themselves believe that it will be 2022 before capacity will exceed supply.

Although Skou is slashing capital expenditure it is not clear that this will help long-term. He is expecting the average return on capital to increase from 7% up to 8.5%, but over an extended time scale. This may yet not be enough to reassure investors.

Moller-Maersk’s credit rating was put under review last September by Moody’s, and on 20th December was downgraded from BAA1 to BAA2, with a negative outlook. Last month Standard & Poor downgraded the company’s credit rating to BBB, with a negative outlook. Maersk acknowledged that its debt to operating profit ratio had climbed to 2.5 over the 12 months to the end of September. The company plans to reduce its capital expenditure from $6 billion in 2016 to $4 billion by 2018, and is looking at reducing the annual dividend again.

maersk-responsible-ship-recycling-india-1As part of the company’s planned savings, it is to scrap eight panamax ships in yards at both Alang and in China. Several are already being demolished, with the others to follow by mid-March 2017. They plan to reduce their fleet still further, as ships reach the end of their economic life. However, Maersk is committed to only using yards that meet or exceed the Hong Kong Convention on standards and safety.