In the third quarter of 2018, A.P. Moller - Maersk progresses in the strategic business transformation, reporting growth in both Ocean and non-Ocean with a total revenue increase of 31% to USD 10.1bn, 12% excluding Hamburg Süd. Growth in non-Ocean was at 15%, which now contributes 31% of total revenue. In addition, synergy effects where materialized.
"Well into our transformation, we are progressing with the integration of our business to better serve customers and unlock the full growth potential within Logistics & Services. As a result, I am pleased to see revenue growth in Q3 across the business, including supply chain services. Our profitability and cash flow is improving, positively impacted by the emergency bunker surcharge announced due to the significant increase in bunker price, synergies from Hamburg Süd and strong collaboration between Ocean and our terminal activities," says Søren Skou, CEO of A.P. Moller - Maersk.
Compared to Q3 2017, revenue in Logistics & Services increased 7.5 % with supply chain management growing 16%. New products are being developed to improve the customer experience, with results already seen where A.P. Moller - Maersk was first in the world to launch Instant Booking Confirmation to customers in the container industry.
Furthermore, gateway terminals continued to grow volumes from external customers as well as from Maersk Line and Hamburg Süd reflecting synergy impact from the closer collaboration. Total synergies with Hamburg Süd of minimum USD 500m excluding integration cost are expected by 2019 as the integration is progressing faster than planned.
Cash conversion improved from 76% to 95%. The free cash flow of USD 2.1bn compared to negative USD 478m in the same period last year lead to a lower net debt.
Volumes in Ocean grew 27%, 5% excluding Hamburg Süd which is above the estimated market growth of 2.7%, but lower than anticipated. Søren Skou elaborates:
"Our business performance in Ocean is still challenged by increased bunker prices not being fully compensated through higher freight rates. However, we continue to see improved results in the third quarter after a very weak start to 2018."
The underlying profit in Q3 amounted to USD 251m compared to USD 254m in the same period last year. Earnings before interests, tax, depreciation and amortization (EBITDA) increased by 16% despite bunker price increasing 47%.
Unit costs at fixed bunker in Ocean decreased 0.6% compared to Q3 2017, when adjusted for foreign exchange rate and inclusion of Hamburg Süd.
Guidance for 2018
A.P. Moller - Maersk expects an EBITDA in the range of USD 3.6-4.0bn from previously USD 3.5-4.2bn and reiterates the expectations of a positive underlying profit.
The organic volume growth in Ocean is now expected in line with the estimated average market growth of 3-4% for 2018 (previously slightly below the estimated average market growth of 2-4%).
Guidance is maintained on gross capital expenditures (capex) around USD 3bn and a high cash conversion (cash flow from operations compared with EBITDA). For 2019 we now expect gross capital expenditure of USD 2-2.5bn.
The guidance continues to be subject to uncertainties due to the current risk of further restrictions on global trade and other factors impacting container freight rates, bunker prices and rate of exchange.
Pilot project at five German branches
Up to 500 new drivers to be hired after successful piloting
DHL Freight, one of Europe's leading providers of road transport services, is launching a driver recruitment initiative to counter the shortage of drivers in the logistics sector. To this end, the company is launching a pilot project at five locations that provide long-term career prospects, modified job profiles offering more varied work, and ultimately make it easier to absorb peaks at busy times. As part of the initiative, approx. 30 new jobs were initially created at the German DHL Freight branches in Maintal, Malsfeld, Koblenz, Sehlem and Erfurt in the spring of 2018. The new employees take on driving duties to complement existing transport capacities and, if necessary, also take on other tasks at the branches. Particularly during the peak season, they will be out on the road covering the first-mile and last-mile legs of deliveries for their particular branches. If the concept proves successful, DHL Freight would like to create up to 500 new jobs in Europe.
Uwe Brinks, CEO DHL Freight, explains, "Our industry is currently being driven by an ever-increasing demand for transport, not least because of the continued strong growth in e-commerce. While we have sufficient loading capacity, we are noticing an increasingly urgent shortage of drivers. We have now adopted a far-sighted approach to addressing this problem with our driver recruitment initiative, which is aimed at ensuring that we can continue to provide our customers with the certainty and service they have come to expect from us."
As part of the initiative, new trucks with a load capacity of 12t will also be ordered, in order to provide drivers with state-of-the-art equipment and ensure sufficient transport capacity even in peak season.
CEO Uwe Brinks clarifies, "At peak times, such as before Christmas, we record particularly high volumes of items. The aim of the initiative is to expand our human resources and physical capacity in order to efficiently absorb these volume increases."
In addition to well-known safety technology, the new vehicles will be equipped with a turning assistant. As part of the GoGreen environmental program, solar mats developed by the Group's own start-up TRAILAR will also be fitted to the roofs of the vehicles. They will power a range of on-board systems such as liftgates, thus helping to reduce fuel consumption by up to 5%. In the medium term, Deutsche Post DHL Group aims to improve CO2 efficiency by 50% by 2025, as compared to 2007. The aim is to reduce emissions of local air pollutants by making 70% of deliveries using clean delivery and pick-up concepts.
The initiative provides for a rotating deployment, whereby the new employees will not be continuously deployed as drivers. During peak periods, they will absorb capacity bottlenecks on the roads. During quieter periods, they will be employed in the transhipment warehouse. New drivers will be remunerated on the basis of current collective agreements.
Air freight peak season is in full swing ? and about to get even busier.
Big e-commerce dates are all happening in November, starting with Singles’ Day on November 11, followed by Black Friday on November 23, and Black Monday on November 26.
While Cyber Monday and Black Friday are traditionally US events, and Singles’ Day is thought of as a Chinese occasion, you can see these growing into global shopping (and shipping) events, with the air freight volumes to prove it.
E-commerce is the fastest-growing sector driving global air freight volumes. Lucas Kuehner, Panalpina’s global head of Air Freight, said in a blog post earlier this year: “We have gone from zero to an estimated 20,000 tons [of e-commerce air freight] in only two years. The actual figure is likely to be higher.”
Big online marketplaces and their suppliers are Panalpina’s most important e-commerce customers. This market is getting bigger as traditional stores are also increasingly turning to e-commerce, and to air freight. In its classic role as a consolidator, Panalpina is also interesting for smaller e-commerce customers.
“When doing e-commerce air freight you have to know exactly what you’re doing and deliver with speed and consistency. That includes staying on top of customs as well as dangerous goods and security regulations, because nothing can go wrong,” said Kuehner.
The boon and bane of freight consolidation for international e-commerce
Unhindered by national borders, legions of consumers will go online this month to purchase products online. After the final, effortless click, their international orders will be consolidated, transported and de-consolidated ? often multiple times.
“Only freight consolidation can make international e-commerce shipments affordable in the first place. Otherwise, transport costs, especially for air freight, would be too high and often in no relation to the price of the purchased product,” explains Kuehner.
“But the consolidation comes with challenges. In many cases, the original shipper details and the product information get diluted by a single commodity list provided under the name of the consolidator, who deals directly with a freight forwarder such as Panalpina. That makes e-commerce cargo riskier than other cargo.”
Freight forwarders, airlines, regulators and authorities are faced with three main challenges:
Firstly, third-party screening for compliance and security becomes difficult since the original shipper details are not transparent at the time of shipment booking.
Secondly, counterfeit and other forbidden illegal items can lead to delays and customs penalties for the shippers.
Thirdly, hidden, falsely declared or undeclared dangerous goods can jeopardize flight safety and the environment.
These challenges need to be addressed, because e-commerce is here to stay. It is estimated that there are currently over one billion online buyers in the world, and online shopping transactions continue to evolve rapidly as global e-commerce retail sales are expected to exceed $4.8 trillion by 2021.
Ensuring compliance with customs, dangerous goods and security regulations
So what does Panalpina do to mitigate risk in the international e-commerce supply chain as much as possible?
First of all, Panalpina handles e-commerce freight as a restricted commodity, meaning it requires prior approval from the company’s standards and governance experts, who evaluate the shipper, the commodity, and other shipment parameters and identify potential risks.
Panalpina has put in place global standard operating procedures for e-commerce freight to ensure a safe and seamless process from booking acceptance to handover to the carriers.
Furthermore, Panalpina has segmented e-commerce customers into three risk groups: low-, medium- and high-risk.
The company has also enhanced its shipper’s declaration for regulatory compliance to specifically address e-commerce-related risks. The amended declaration allows Panalpina, with the consent of the shipper, to perform physical checks and cargo security screenings when deemed necessary.
All of these measures mitigate risk in international supply chains that are inherent to the global boom of e-commerce.
For the 10th edition of Singles’ Day this coming Sunday alone, Alibaba expects to receive more than one billion orders.
The majority of these orders will come from within China. However, with Alibaba’s significant and growing presence in international markets across Asia, Europe and Latin America, scores of products will have to be shipped to consumers the world over too.
Panalpina is here to help in the background, playing a discreet but important role in ensuring that international e-commerce shipments comply with customs, dangerous goods and security regulations.