Results Provide Respite, But Challenges Remain
French, privately-owned container major CMA CGM has reported improved third quarter earnings, leaving the shipping group on course for a full-year profit amid what has been a hugely challenging four years for the global container sector. However, while providing some much-needed respite and underscoring the success of its cost-cutting programme, ongoing issues of overcapacity and a weak global growth outlook do not provide cause for much optimism heading into 2013.
CMA CGM posted a third quarter net profit of US$371mn, bringing 9M12 profit to US$310mn, compared to just US$13.2mn in the same period of 2011. An improved third quarter has been attributed to internal cost-reduction measures, but also some rates relief and the benefits of reduced fuel costs. The ongoing twin challenges of overcapacity and weak global growth have seen the company itself state that the fourth quarter will be weaker and yet notably, it remains on track to post a full-year net profit.
Reasons for optimism for CMA CGM come in the form of the successful cost-control measures that the company has initiated to date. In the first nine months of the year it has realised savings of US$550mn, equivalent to a 5% year-on-year reduction in operating costs and well ahead of the target of US$400mn in savings for the full-year. Planned asset sales - including the disposal of a 49% stake in its terminal operator Terminal Link and the sale and lease-back of some of its self-owned vessels - should help keep operating costs under control moving into 2013. Furthermore, planned investments from French fund FSI (US$150mn) and Turkey's Yildirim (US$100mn) should help alleviate operating pressures. Finally, perhaps most importantly and related to the aforementioned planned capital injections, CMA CGM has also reached a restructuring deal with its lenders to help manage its debt obligations due next year.
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While providing respite and putting the company on a firmer footing, BMI does not, however, see the above as preventing CMA CGM from having another highly challenging year in 2013; the external operating environment remains just too tough. On the supply side, issues of overcapacity will only become greater and indeed CMA CGM itself is contributing to this with its own ordering strategy. On the demand side, a weak outlook for global economic growth will act as a further headwind for CMA CGM.
BMI is forecasting global real GDP growth of 2.9% in 2013, a figure just revised down from a previous forecast of 3.0%. While high frequency indicators suggest that the outlook for global growth is weak, rather than recessionary, a Chinese hard landing, eurozone debt woes, the impending US fiscal cliff, the ever more marginal gains to be realised from expansionary monetary policy and the increasing difficulty with which governments can pursue expansionary fiscal policy, all mean that this outlook remains precarious.