Asciano stays on even keel with new container contract

ASCIANO appears to have halted the slide in the loss of market share to DP World, securing a crucial five-year contract with Danish shipping company Maersk Line.

By InvestSMART · 21 Jul 2011

By InvestSMART ·
21 Jul 2011

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ASCIANO appears to have halted the slide in the loss of market share to DP World, securing a crucial five-year contract with Danish shipping company Maersk Line.

Under the existing contract, Asciano's Patrick offshot moves approximately 503,000 containers a year and the new deal, which is effective immediately, adds an extra 190,000 containers per annum.

"The successful execution of this contract with Maersk Line is a significant achievement for our business and it's a testament to the strength of Patrick's Container Terminal operations," Asciano's chief executive, John Mullen said.

The announcement of the deal comes as Asciano is due to release the findings of a company-wide review into its operations next month.

Austock analyst, Andrew Chambers, said the new contract means Asciano is now less likely to divest its port operations.

"Clearly, winning a contract from a major customer means they won't be rushing to sell or divest its shipping arm just yet but it will become clearer once the company-wide review is released in a month or so," Mr Chambers said.

"It's likely they will look to improve operations rather than sell off the business now that there appears to be a gain in market share," he said.

Mr Mullen said in February that he was open to selling poor performing assets, raising questions about Asciano's intention to sell-off it container ports operation.

Asciano's shares yesterday rallied 4.63 per cent to close 7.5? up at $1.70.

"The increase in container movement is modest but in itself positive," Mr Chambers said.

"The signal it sends to the market is more important, that Asciano is able to win back some of the market share it had been losing to DP World in the past two years."

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Frequently Asked Questions about this Article…

What is the new Asciano–Maersk contract and how big is it?

Asciano’s Patrick container business has secured a five-year contract with Maersk Line. Under the existing arrangement Patrick moves about 503,000 containers a year and the new deal adds an extra 190,000 containers per annum, taking annual throughput to roughly 693,000 containers. The contract is effective immediately.

How does the Maersk deal affect Asciano’s market share versus DP World?

The Maersk contract appears to have halted Asciano’s recent slide in market share to DP World. Analysts say the win signals Asciano is beginning to win back some of the market share it lost over the past two years, which is seen as an encouraging sign by the market.

Does this contract mean Asciano will keep its port and container operations instead of selling them?

According to Austock analyst Andrew Chambers, the Maersk win makes Asciano less likely to divest its port operations in the near term. Management had previously said it was open to selling poor-performing assets, but the company-wide review due next month should make Asciano’s intentions clearer.

What did Asciano’s CEO John Mullen say about winning the Maersk contract?

John Mullen described the Maersk contract as a significant achievement and a testament to the strength of Patrick’s Container Terminal operations, highlighting successful execution of the deal by the business.

What are analysts saying about the significance of the Maersk contract for Asciano’s strategy?

Analyst Andrew Chambers said the contract suggests Asciano won’t be rushing to sell its shipping arm and is more likely to focus on improving operations now that it has gained market share. He also called the increase in container movement modest but positive, with the market signal being the most important aspect.

How did Asciano’s share price react to the announcement of the new contract?

Asciano’s shares rallied in response to the announcement, rising 4.63% and closing at $1.70 (as reported in the article). This positive market reaction reflected investor approval of the Maersk deal.

How long is the Maersk contract and when does it become effective?

The contract is for five years and, according to the article, it is effective immediately.

What should everyday investors watch next after Asciano’s Maersk deal?

Investors should watch the findings of Asciano’s company-wide review due next month, any announcements about operational improvement plans or asset sales, and how market share with competitors like DP World evolves. Those items will clarify management’s strategy and could affect the share price and long-term outlook.