Saturday, November 14, 2015

There is no business like terminal business

That Maersk (or Denmark Inc.) is an exceptional company should come as no surprise to anyone (if ever in the mood, I will recount here my one and only experience with the late Mærsk Mc-Kinney Møller, once he was visiting Rotterdam). The company (group) is packed with money: last year it turned an operating profit of 9.3 billion dollars, well above the group’s combined debt of 7.8 billion dollars. Usually, accountants like money in the till: this boosts the company’s credit ratings and thus reduces its cost of capital. But shareholders (and economists) think differently, and Maersk these days is under pressure to spend its money and invest its surpluses. And this is so for 3 reasons: a) dividends are taxed; capital gains usually not; b) profits attract competition; c) profits also attract the inquisitive eye of the regulator, particularly if you and your partner (MSC) control almost one third (28.1%) of the market. After all, in network industries such as container shipping, a company’s objective should be market share maximization (i.e. long-run profit), rather than short-term profitability. And Maersk’s investment vehicle these days is called APM Terminals: another exceptional company, controlling 70 terminals (and more than 100 inland facilities) in 60 countries. Last year, APMT showed a NOPAT (net operating profit after tax) of 20%! Year after year I advise my students to put their parents’ pension into Global Terminal Operators… Some have listened; others are yet to do so. One thing is for sure though: “there is no business like terminal business”. HH