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Cost blowouts cause profits to plunge at CMA CGM

Marseille, France-based maritime container shipping giant CMA CGM generated record revenues of over USD$23 billion in 2018 but suffered a huge 91 percent slump in profitability after the group experienced several massive cost increases.

CMA CGM generated a record $23.48 billion in revenue in 2018. That was $2.36 billion more than the year before, which represents an 11 percent increase in revenues. The vast majority of the year’s revenue, $22.85 billion, was directly derived from container shipping. Box-shipping therefore accounts for about 97 percent of CMA CGM’s revenues.

The group attributes its upswing in revenues to a “surge” in container volumes. According to CMA, earnings received a boost as container volumes rose by 9.3 percent from 18.95 million twenty-foot equivalent containers (TEU) in 2017 to 20.71 million TEU in 2018.

“This increase is attributable to the commercial dynamism of most of the shipping lines operated by the Group, in particular the TransPacific, India/Oceania and Africa lines,” the group said.

However, although the group’s top line revenue figure is spectacular, it was scuttled by massive cost increases that saw net profits sink by $662.4 million to a mere $68.3 million.

That’s a fall in net profit of 91 percent.

Accordingly, that gives CMA CGM a gross profit margin of just over 4.9 percent as calculated by the formula (gross profit/revenues) x 100; [($1,157 / USD$23,476)*100] = 4.9 percent.

The huge increase in costs is such a big issue for the company that it has launched a new cost-reduction plan to reduce costs by $1.2 billion. However, it has given little in the way of detail other than stating it is looking to improve operational performance with the “objective” of saving $1.2 billion through the “optimization of lines and brands” and by “further streamlining its processes.”

Large operating expenses included employee benefits, at $1.88 billion

 

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Plunging into the depths of the notes to the accounts reveals exactly why the group spent so much money.

Its biggest expenses were handling and stevedoring costs which were $6.27 billion in 2018, 13 percent higher than the year before. That’s an increase in costs of $719 million.

Bunkers (fuel for ships) was also another major pain-point. Bunker costs in 2018 were $3.62 billion, up 41 percent over the previous year. That increase cost the group an extra $1.05 billion.

Other cost increases included inland and feeder transport costs, up 14 percent to $3.32 billion, an increase of $405 million. Charter and slot fees also hurt profits with an increase of 14 percent, or $287 million, to $2.35 billion. Box rentals and other logistics expenses were $2.13 billion, an increase of $396 million, or 23 percent from the previous year.

Other large operating expenses include employee benefits, up $180 million (an 11 percent increase) to $1.88 billion. Port and canal fees were up by 14 percent to $1.53 billion and general administration costs rose by 16 percent to $848 million.

Moving away from operating expenses, there were also significant other expenses, particularly interest on borrowing. That cost remained relatively stable at $491.2 million in 2018, marginally down from the $494.3 million recorded in 2017.

Source: https://www.freightwaves.com/news/maritime/big-revenues-tiny-profits

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