Although the Maersk Container Business was able to increase the revenues with approx. 40% in the first half year of 2006, the container business did write red figures for the first time in its history. With a loss of 607 mln USD the loss is significant. For the second half year, a considerably improved but negative result for the total container activities is expected. Is the P&O Nedlloyd integration to blame?

Maersk Line claimed that the mianfactors for the losses were:
? Maersk Line has not obtained a share of the general market growth during the first half year 2006.
? Rates for the container services were on average approx. 5% lower including bunkers adjustment factor compared to the first half year 2005 (in USD).
? Highly increased costs for bunkers which are only partly compensated by bunkers adjustment factor.

In the first half year of 2006 the total growth in world trade was at the level of that in the corresponding period in 2005. The global growth in transported containers at 9% p.a. was at a reasonable level. In the first half year 2005 the growth was 12% p.a. Maersk Line has not obtained a share of the general market growth during the first half year. The development was partly negatively affected by changes in the service network and the integration of the organisations following the acquisition of P&O Nedlloyd as well as the implementation of new extensive IT systems. This has resulted in lower utilisation of tonnage than expected and thus higher unit costs.

During the first half year freight rates have been under great pressure in most services, and the decline inrates has been both faster and stronger than market conditions indicate. This has especially been visible on the large services from Asia to Europe and North America. Compared to the first half year in 2005 Maersk Line?s average rate has declined 5% including bunkers adjustment factor ? 9% before this adjustment.

Lack of growth in Maersk Line?s freight volumes combined with lower freight rates and higher fuel
expenses (on average 50% higher per tonne compared to the first half year in 2005) have resulted in a
strongly unsatisfactory loss for the first half year 2006.

During recent years Maersk Line has initiated development and implementation of advanced IT systems
supporting large parts of the central business processes. Simultaneously reorganisation has taken place e.g. by establishing joint global service centres. This has been done with the purpose of handling the
considerable growth in the business volume in the most cost efficient way, and at the same time deliver high service to the customers. Unfortunately, during the process unforeseen difficulties have unavoidably affected our customers. An extensive effort to eliminate these negative effects has now resulted in progress in most areas.

The acquisition of P&O Nedlloyd took place in August 2005. Just six months later ? in February 2006 ?
the global amalgamation of both organisation and service network was carried out. The liner services will continue under the name Maersk Line with an expanded and attractive service network. The integration has been carried out as planned and the realised direct integration costs were USD 79 million. In addition to this, considerable indirect costs in connection with the integration are included as ordinary operating expenses. Considerable synergies are still expected to be realised during the coming years.

In the second half year the rates for the container services are expected to be at the level of those in the first half year ? on average 5% below the level for the full year 2005, including the compensation for higher fuel expenses. The cargo volume is expected to increase partly due to seasonally higher demand in the second half year. The fuel prices are assumed to be unchanged compared to the present level. Consequently, a considerably improved but negative result for the total container activities is expected for the second half year.

Source: Maersk Interim Report 2006

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