Maersk warns of ‘radically changed’ world as profits tumble

AP Møller-Maersk warned of a “radically changed business environment” as profits plunged at the world’s second-largest container shipping line and worries grew about a wave of new ships soon to add to pressure on the industry.

The Danish shipping and logistics group beat analyst expectations in the first quarter but cautioned that earnings for the rest of the year would be weaker even as it forecast improved demand in the second half.

Chief executive Vincent Clerc told the Financial Times there was a possibility that a bad situation could be made worse by the large number of ships ordered by rivals in the boom years and due to be delivered this year and into 2024.

“It’s clearly going to be bumpy because there are quite a few coming this year and quite a few coming next year, too. The volumes are coming back after, but it’s not like the macroeconomic backdrop points to a lot of growth to take care of this.”

Container shipping went through an extraordinary boom after the first wave of the Covid-19 pandemic in 2020, with the industry making more money in three years than in the previous six decades.

But companies such as Maersk and market leader Mediterranean Shipping Company are braced for a tough 2023 as businesses reduce their inventories and freight rates fall from record highs.

Operating profit at Maersk fell by more than two-thirds to $2.3bn in the first quarter compared with a year earlier but was ahead of analyst expectations of $2bn. Revenues were down by a quarter to $14.2bn.

Maersk stuck by its full-year guidance of $2bn-$5bn of operating profits but said the first quarter was likely to be the strongest of the year as customers gradually renegotiate long-term contracts at lower rates.

Nevertheless, the company expected the inventory correction to be over by the end of the first half and volumes to pick up in the final six months of the year.

Typical destocking processes take six to nine months, Clerc said, and the current cycle began in September. “It will probably be a bit bigger as the past two years were atypical. So somewhere in the nine-months zone from September. Will it take one, two, three months more? We don’t know.”

Volumes in its core ocean business fell by 9.4 per cent in the first three months of the year while freight rates dropped by 37 per cent. Revenues in the division fell by more than a third to $9.9bn while operating profits plunged by almost three-quarters to $2bn.

Maersk said it expected economic growth to be “muted” and that the container market, a proxy for global trade, was most likely to contract. Maersk has started slow steaming — cutting sailing speeds to save on fuel bills — and reduced the number of vessels it charters in an attempt to minimise costs.

Clerc said he was pleased to see freight rates stabilise recently at normal levels rather than “overshoot” as in previous downturns. “It is a good sign of more discipline and rationality in the market,” he said. “We have to hope that it continues to play out this way as this new tonnage is phased in.”