Maersk forecasts long and deep contraction in global trade

Friday, 22 September 2023

AP Møller-Maersk has warned that a contraction in global trade will prove longer and deeper than the container shipping giant had feared, as companies cut their inventories in the face of recession risks in Europe and the US.

The Danish shipping and logistics group said on Friday that global container demand — regarded as a proxy for global trade — would fall by 1 per cent to 4 per cent this year, versus a previous forecast of plus 0.5 per cent to minus 2.5 per cent.

Container shipping, an industry whose fortunes are tied to globalisation, enjoyed a historic boom from 2020 to 2022 as retail and industrial companies struggled to restock and respond to pent-up demand unleashed after the lifting of coronavirus lockdowns.

But container lines are having a much harder year as their customers cut back on stock levels and the industry braces for the arrival of a huge number of new ships ordered during the upturn.

Nevertheless, a better than expected first-half performance was enough for Maersk to lift its annual earnings forecast. The group warned that the rest of 2023 would be tougher.

Vincent Clerc, Maersk’s new chief executive, told the Financial Times it was a “bittersweet” feeling as a robust first half was balanced against concerns about the future, particularly the number of new ships being delivered in the next 12-24 months.

“We are in the midst of the biggest correction after the Covid boom of 2021 and 2022,” he said. “It’s always difficult to handle such a radical change in demand . . . There is quite a significant order book that will be phased in. This is likely to create a difficult trading outlook. We expect a continued correction on earnings.”

In the second quarter, Maersk’s revenues fell 40 per cent year on year to $13bn, while its earnings before interest, tax, depreciation and amortisation tumbled 72 per cent to $2.9bn, albeit ahead of analysts’ expectations of $2.4bn.

Maersk lifted its ebitda forecast for the full year from $8bn-$11bn to $9.5bn-$11bn. At the peak of the boom in 2022, Maersk made $37bn in ebitda.

During the boom, Maersk was dethroned as the world’s largest container line by Mediterranean Shipping Company as the two companies have pursued widely different strategies.

The Danish group has sought to use windfall profits from the past few years to bulk up its land-based logistics business in an effort to offset more volatile earnings from its shipping arm. MSC, meanwhile, has ploughed much of its money into new vessels.

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A fisherman casts a rod as a Maersk container ship sits docked at the Port of Felixstowe in the UK

Clerc acknowledged that Maersk’s logistics business had been “too optimistic” in its forecast after suffering its first quarterly drop in revenues for several years. The business “needed to get back to cost discipline” by cutting capacity and jobs in the coming quarters, he said.

On the ability of the container shipping industry to absorb all the new ships arriving, Clerc said it would be “a bumpy road ahead”, but he still expected the industry to be more rational than it had been in the past.

Maersk estimated global container demand fell by 4-6.5 per cent in the second quarter compared with a year earlier as companies worked through existing inventories, an economic slowdown in China and recession fears in the west.
Source : www.ft.com