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May16, 2016

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MAERSK LINE'S PROFIT DIVES ON WEAK RATES MAERSK LINE'S FIRST-QUARTER net profit plummeted 95 percent, dragged down by collapsing freight rates. Nils Andersen, CEO of Maersk Group, called it a "break-even result" for the container transport unit in a tough market, which saw the world's largest container carrier post a profit of $37 million, a big difference from the $714 million profit reg- istered in the first quarter of 2015. This result helped pull the first-quarter underlying profit of the Maersk Group down 86 percent from $1.3 billion to $214 million. "Rates have been down to record low levels in the first quar- ter on the back of weak trade development in many countries. Maersk Line's profit of $37 million is basically break-even," Andersen said in a conference call to reporters. Maersk Line's performance is regarded as an indicator of the state of the container shipping indus- try, and while its first-quarter figures were an improvement on those of the last quarter of 2015, they show an industry struggling to improve profitability despite higher volume, lower bunker fuel prices and lower unit costs per 40-foot-equivalent unit carried compared to the first three months of 2015. Deteriorat- ing market conditions in the container trades late in 2015 continued into the first quarter, with revenue at the carrier tumbling from $6.2 billion to $4.97 billion, a drop of 20 per- cent driven by average freight rates declining 26 percent to record lows. Maersk said the weak rates were experienced across all trades, but especially in the carrier's key European routes, to which it is heavily exposed, as well as in the Latin American and North Ameri- can trades. The falling revenue was only partially offset by volume that grew 7 percent year-over-year to 2.36 million FEUs and a 10 percent decrease in total costs, led by a 48 percent decrease in the price of fuel that pulled down the average unit cost of trans- porting a container by nearly 5 percent to $2,060. The sustained period of low rates has coincided with declining contract rate levels, which Andersen said were below those of last year and would lead to a change in Maersk Line's approach. "We will try to be more exposed to the spot market," he said. Maersk said global container demand grew approximately 1 percent year-over-year in the first quarter of 2016. The low growth in demand was primarily related to a slow - down in emerging economies because of low commodity prices and structural economic challenges. Europe remained subdued in the first quarter, and weak Chinese imports further affected global trade. US EXPORTERS GET POSSIBLE SOLAS RELIEF U. S. EXPORTERS WELCOMED the U.S. Coast Guard's late-April decision to give its stamp of approval to two alternative methods for obtain- ing certified container weights to comply with new international regulations: one proposed by agricultural shippers and another proposed by the South Carolina Ports Authority. The move paves an easier path for exporters, particularly agriculture shippers, but it's not yet certain how container terminals and carriers will respond. The International Maritime Organi- zation's Safety of Life at Sea amendment takes effect globally July 1. "That statement may trigger some further consideration by termi- nal operators about their policies on providing SOLAS-compliant container weights using their existing scales," John Butler, president and CEO of the World Shipping Council, said in a statement. Under the method proposed by the Agriculture Transportation Coalition, exporters would certif y the weight of their cargo and packing materials, while container lines would certify the weight of the containers that they own, control and manage. The liners would then combine the two weights to cre- ate a verified gross mass, which is required by the new rule, that is submitted to the terminal operator before loading. AgTC has argued that the method takes into consideration that ship- pers cannot and should not be held liable for the weight of the container itself, which they neither own, lease nor operate. Under the plans that Jim Newsome, SCPA president and CEO, has drawn up and circulated to customers, the Port of Charleston would offer to weigh export containers with its weigh bridges currently used to comply with existing Occupational Health and Safety Administration rules. The cost to the shipper will be $25 per container. Spotlight 6 THE JOURNAL OF COMMERCE MAY 16.2016 6 THE JOURNAL OF COMMERCE

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