Despite cyber setback, sunshine on horizon

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   It’s always news when the A.P. Moller-Maersk Group announces its quarterly financials.
   Being the biggest fish in the sea means every development carries significance, especially in a sea with fewer and fewer fish.
   But Maersk’s first half 2017 earnings release Wednesday was particularly notable for a couple unusual reasons. For one, it was the first time Maersk has spoken publicly to analysts since it was hit by a major cyberattack in late June.
   And second, the industry was keen to know how Maersk fared in the first half of a year in which container volumes and freight rates have steadily inched upward. Being a bellwether brings responsibility.
   Speaking about the cyberattack, Maersk Group Chief Executive Officer Soren Skou was forthright but sanguine about the impact on the company. He insisted that Maersk wouldn’t be hurt long-term in terms of customer defections due to the aftermath of the attack.
   He said shippers were sympathetic to Maersk’s plight, not accusatory. He added the impact of lost volume lasted only a couple weeks, and that no data was lost to third parties. The company said it was impacted by a random vulnerability and that it was not a specific target.
   “The malware was distributed through a Ukrainian accounting software called MeDoc, used for filing tax returns in Ukraine,” Maersk said in its financial statement. “The MeDoc software contained backdoors into the networks of users of the software, which were used by the malware to enter via the software’s automatic update system. As soon as A.P. Moller – Maersk became aware that systems had been affected, action to respond was initiated including closing down infected networks. The malware was contained to only impact the container related businesses of A.P. Moller – Maersk.”
   The damage to the company was estimated to be in the $200 million to $300 million range. That’s a hit that profit-challenged container lines would be loath to incur in most years. So if the attack was going to occur, it appears 2017 was a decent year for it to happen.
   Maersk executives said repeatedly on the earnings call that they were surprised by the rapidity of a rate revival this year. The historic consolidation that’s occurred in the last 18 months allowed Maersk to grab market share on key trades, and it is now focused on profitability as volume swell this year.
   Rates in the second quarter of 2017 were 22 percent higher than they were in the same quarter of 2016. That increase was largely driven by growth in east-west trades, where rates grew more than 35 percent year-over-year. East-west volumes represent about a third of Maersk’s global volumes, which rose less than 2 percent year-over-year. East-west volumes in the quarter actually contracted 1.3 percent.
   Skou pointedly said Maersk has been profitable in all trades this year, a sign of balance that indicates no trades are subsidizing others.
   When asked about whether the rate recovery is at its apex, Skou said he would make no pronouncements about whether they would go higher.
   “Let’s hope so,” he quipped. “That would be nice.”

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