Despite significant business pressures related to the impact of COVID-19 on global trade, shipping giant CMA CGM group reported strong results for the second quarter. In addition, while being cautious management also signaled that the business was improving and expects the recovery in the shipping business will continue into the second half of 2020.
Discussing its performance during the quarter, CMA CGM highlighted that it had been operating under unprecedented conditions and in fact container traffic volumes decreased for the first time since 2009 as a result of lockdown measures in several countries. Container volumes were down more than 13 percent in the second quarter but the company highlighted that as lockdown measures were gradually lifted, carried volumes bounced back strongly as of May under the combined effect of inventory rebuilding and the sharp recovery in the consumption of goods, notably in the United States.
The volume declines produced a nine percent decline in revenues during the quarter, but the group reported strong improvements in portability with EBITDA up by more than 26 percent. Margins improved by more than 17 percent on an EBITDA basis and seven percent for operating margins. This contributed to the company’s return to profitability versus a year ago with $136 million in net income and operating cash flow of more than $1.1 billion.
The shipping operations of CMA CGM saw similar results with a nearly 11 percent decline in revenues but a 30 percent increase in EBITDA with better than nine percent operating margins. Contributing to these improvements was both a decline in oil prices as well as the group’s cost-cutting initiatives and the reduction in its fleet and containers deployed. CMA CGM said that it was able to leverage its shipping and logistics expertise to tackle the challenges in the market while also improving profitability, in particular by actively adapting fleet capacity to demand and continuing its cost discipline.
Discussing the outlook, CMA CGM highlighted that it is expecting a continuing rebound in international trade. They forecast that the recovery in container shipping seen since April should continue during the third quarter of 2020 for most routes, driven by a faster recovery in the consumption of goods than of services, the growth of e-commerce, and usual seasonality. These are the same factors, CMA CGM noted that drove freight rates to historically high levels, in particular on transpacific routes.
They are expecting further improvements in operating performance expected during the third quarter. “The group is confident in its business outlook for the third quarter of 2020,” they said in releasing their results. “The current strong momentum of the shipping market, driven by both volumes and freight rates, should allow the group to further significantly improve its operating margin compared with the second quarter.”
Management, however, noted that they will continue to carefully monitor developments, noting the uncertainty in global trade. CMA CGM has already taken steps to enhance its financial strength, but they noted that management would continue to proactively evaluate all potential options to strengthen its financial structure, which may include refinancing opportunities across all available funding sources.
During the second half of 2020, CMA CGM will also be proceeding with its plans to simplify the shipping services it offers while also improving its cost base. Transfers have already been completed on the Asia to India and Latam trade routes and CMA CGM as previously announced will become the sole carrier on the Transpacific trade. APL is being repositioned to primarily focus on U.S. government cargo while ANL, CNC, and Mercosul Lines will be regionally focused operations supporting regional hubs.
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