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Maersk keeps down costs with uncertain container traffic outlook

By Jacob Gronholt-Pedersen and Stine Jacobsen
FILE PHOTO: Truck transports a Maersk shipping container by a cargo ship at a port in Qingdao

By Jacob Gronholt-Pedersen and Stine Jacobsen

COPENHAGEN (Reuters) - A.P. Moller-Maersk <MAERSKb.CO> said on Friday prospects for a pick-up in demand for seaborne container traffic were clouded by an uncertain economic outlook but the shipping group's focus on driving down costs helped its shares higher.

The world's biggest container shipping firm said global container demand was expected to grow by 1%-3% next year compared with 1%-2% in 2019.

But it said that "the continued weakening of global sentiment, above all in the manufacturing sector, reduces the likelihood of a growth pick-up in 2020."

Despite headwinds from the U.S.-China trade war, Maersk shares received a boost last month after the company raised its expectations for 2019 profit.

Its shares rose a further 2% early on Friday after full results for the July to September period showed it was on track to improve its profit margin despite slightly lower revenue.

The rise in profitability has been driven by capacity management and cost controls, with unit costs, or the cost of moving a container at sea, down 3% in the third quarter.

"We will continue our focus on profitability and free cash flow in the fourth quarter and into 2020," Chief Executive Soren Skou said in a statement.

Maersk has in several quarters struggled to keep costs under control because of low freight rates, rising fuel prices and a slowdown in container shipping.

"It is nice to get the strong cost control confirmed, especially at a time where the expectations for future growth is diminishing and there is great uncertainty about the impact from new low-sulphur fuel requirements," said Sydbank analyst Mikkel Emil Jensen.

Under new rules from January, ship owners must use fuel with a lower sulphur content or fit vessels with equipment that reduces emissions.

As Maersk shifts its focus from market share to lowering costs, it said it expected underlying growth in its ocean business to be slightly lower this year than average market growth.

Skou has overseen a major change in Maersk's strategy since 2016, which has included selling its oil and gas business and focussing on its container and logistics business for customers including Walmart and Nike.

Sydbank's Jensen, who has a 'hold' rating on Maersk, said growth in the company's non-ocean business was also reassuring.

German rival Hapag-Lloyd <HLAG.DE> said on Thursday its earnings before interest and taxes had more than doubled in the first nine months of the year, citing better performance in volumes and freight revenues.


(Reporting by Jacob Gronholt-Pedersen and Stine Jacobsen; Editing by Mark Potter and Edmund Blair)