CMA CGM, the new giant of French capitalism

The shipowner was already an important player in the French economy, but with its gigantic profits, CMA CGM has made a place for itself among the largest multinationals in the country. It is one of the companies that currently earns the most money, with $ 17.9 billion in net income in 2021, an amount slightly higher than that of the giant TotalEnergies, which nevertheless also made record profits. On the strength of this war chest, the carrier multiplies investments: it has become one of the first shareholders of Air France, a buyout of the giants of logistics, delivery, an acquisition of stakes in a satellite company, etc. . .

Arrived in Marseille, impossible to miss the CMA CGM tower in the port. This building of nearly 150 meters almost touches the height of the church of Notre-Dame-de-la-Garde, perched on its hill. Sign of its financial power and its desire to weigh, the group bought this summer the regional daily Provence. We now lend him the intention of getting his hands on the M6 ​​channel. Where will the Marseille shipowner’s appetite stop? Should we fear CMA CGM?

The company has gradually made a name for itself in the major world ports, as the container has established itself as a tool of international trade. CMA CGM is part of the restricted circle of the small dozen shipowners dominating this sector, smaller than the Danish Maersk and the Italian-Swiss MSC, but oscillating between third and fourth place worldwide, depending on the performance of the Chinese Coco. A sector unaccustomed to large flags, other than maritime, and whose promise is simple: to transport a container from one port to another. But the pandemic has allowed a dizzying increase in profits and an acceleration of changes in this sector.

Windfall

To take the measure of the surge in profits, we can look at the freight rate on the “spot” market, that is to say the price of transporting a container in the short term where the reservation is made from ‘Week after week. This spot market, for example, represents a third of CMA CGM’s activity, the rest being made up of long-term contracts, ie manufacturers having reserved regular transport capacities at an agreed price. However, the spot logically influences long-term contracts in their successive renegotiations.

While the group lost money in 2019, the group’s net income climbed to 1.7 billion in 2020 and then to 17.9 billion in 2021. This record should be broken this year

The Shanghai Containerized Freight Index (SCFI) is an indicator of container prices from China’s largest port and therefore reflects global trends. This one had been oscillating between 600 and 900 dollars for years. It soared from mid-2020, consistently above $2,500 in 2021 and even hitting $5,000 late last year. It is therefore a multiplication by five of the remuneration of carriers. Opposite, the costs have not increased as much.

How to explain such a surge? Simply by the law of supply and demand.

“Containments have caused financial availability for consumption in rich countries, especially in the United States and a little in Europe”explains Paul Tourret, director of the Higher Institute of Maritime Economics (Isemar). “Basically, the product replaced the service which was no longer accessible, and this led to an increased demand for containerization. »

Some of what was not spent on movies, restaurants or going out was spent on printers, coffee makers, computers, etc. Requiring boats to transport them.

“The other explanation is the congestion of certain ports in the United States”says Olaf Merk, of the International Transport Forum (ITF), an organization dependent on the OECD. “The ports have limited unloading capacities, queues have therefore appeared in front of certain American ports, using the supply of available ships and therefore containers. »

We are therefore faced with a reduction in supply and an increase in demand, which mechanically contributes to increasing prices.

This adds to the uncertainty linked to successive confinements, particularly in China. For fear of seeing a particular port close due to a new surge in Covid cases, many industrialists have paid a high price to be sure to load their goods on time.

The result of this economic downturn: very high profits. While the group lost money in 2019 and posted profits of a few tens of millions of dollars in 2018, the group’s net income climbed to 1.7 billion in 2020 and then to 17.9 billion in 2021. This record Should be beaten this year, since in the first six months of 2022, the shipowner has already recorded a net profit of 14 billion dollars. CMA CGM is not an isolated case in the sector, Maersk for example multiplied its profit by six in 2021, modulating 18 billion dollars.

Serial redemptions

What to do with this windfall? “90% is reinvested in the company”, repeats the group. This still means that 10% of these profits go to dividends, or $1.7 billion for the shareholders, mainly the Saadé family, which controls the majority of the capital of this unlisted family business. On the investment side, CMA CGM is accelerating the strategic shift towards logistics, announced in 2018 and put into practice by acquiring Ceva in 2019, a Swiss logistics company managing more than 9 million m2 in 700 warehouses around the world and with 56,000 employees.

The superprofits gave wings to this orientation. At the start of 2022, the carrier acquired Colis Privé, one of the French leaders in home delivery and a useful link in mastering last-mile logistics. In the spring, it was Gefco which went under the flag of the Marseilles shipowner. Less known to the general public, it is the former subsidiary of PSA specializing in the logistics of assembled cars. Gefco is present in 47 countries and employs more than 11,000 people.

CMA CGM also got into air freight and created a company. The fleet currently has only two Boeings, but should swell to a dozen aircraft in the coming years. Above all, CMA CGM has established a partnership with Air France: the two companies are pooling their cargo networks. In exchange, the Marseilles became the largest private shareholder behind the French and Dutch state.

This summer, CMA CGM also acquired a 5% stake in Eutelsat, one of Europe’s leading satellite operators, specializing, among other things, in maritime and air connectivity. The list is still long, but without being exhaustive, we could also mention the takeover of Continental Rail, a Spanish railway company managing freight lines between ports and urban centres.

Vertical integration

The strategy couldn’t be clearer: CMA CGM wants to control the transport offer from start to finish.

“The objective is to be able to sell logistics services to large multinationals to transport their products from point A to point B”explains Aurélien Rouquet, professor of logistics at Neoma Business School. “Which requires having the know-how and the infrastructure of the different modes of transport, maritime, rail, road and air, and this on a global scale. »

In short, CMA CGM moves up the maritime transport value chain. This is called “vertical integration”, when a company expands and integrates activities that were previously those of its suppliers or distributors. Controlling more links in the chain makes it possible to improve to one’s advantage the balance of power vis-à-vis the shippers, that is to say the industrialists wishing to have their goods transported.

“Transport prices are partly linked to the balance of power between those who transport and those who load. For a very long time this was for chargers, now it tends to be the other way around”tip Aurélien Rouquet.

What Olaf Merk confirms:

“It’s the beginning of a reversal of the balance of power with the shippers. Large shipping groups offering door-to-door transport can more easily decide where loading takes place and the mode of transport used, particularly to the hinterland. »

In this sector, which is gaining market power, France therefore has a well-placed player. “CMA CGM is becoming a sweet power economic français »sums up Paul Tourret. As a result, ties with the state are reduced. Like TotalEnergies with its catering at the pump, CMA CGM has, after consultation with the government, announced a reduction in its freight rates for France and the overseas territories, “to directly support French households”.

It is also in this way that we can read the takeover of Provence by CMA-CGM. A company that wants to show its power buys media to gain influence. LVMH, Free or Dassault did nothing else by getting their hands on The Parisian, The world we Le Figaro. There remains the annoying question, the one that is normally asked of the giants of French capitalism and which now concerns the Marseilles company: how to frame the power of this new mastodon?

A more than advantageous tax system

While the debate rages on the taxation of superprofits, CMA CGM does not even pay basic tax on its profits. Maritime transport is indeed one of the few sectors exempt from income tax. The shipowner is subject to a tax on the tonnage of his ships, which therefore depends on the transport capacity of the company and not on its economic results. A levy paid by the company whether it is profitable or loss-making, therefore very profitable in fast times like today. The cost of this tax niche is set at 3.8 billion euros in lost revenue for the State in 2022.

Inspired by the Greek case, this advantageous tax regime has been generalized in Europe in order to keep shipowners on the continent. For its defenders, it is a success: the three largest carriers in the world are European (MSC, Maersk and CMA CGM) and the German Hapag-Lloyd occupies fifth place. So much so that the Old Continent resists the offensive of Asian players, such as Cosco or Evergreen, unlike the Americans who no longer have major players in the sector.

“The objectives of the tonnage tax are not improved”weights Olaf Merk, of the International Transport Forum (ITF). “Certainly, the head offices are in European countries, but many ships of European shipowners are under foreign flag; Same in terms of jobs with many seafarers coming from other countries. We will agree to introduce more conditions for the granting of the tax, such as a proportion of European sailors”he completes.

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