Maersk Sees ‘No Sign of a Substantial Rebound’ in Container Volumes
One of the world’s largest container shipping companies expects container demand will continue falling this year as clients clear through massive product stockpiles, part of the “prolonged” inventory correction that’s been going on since last year.
AP Moller-Maersk expects cargo volumes to fall by as much as 4 percent this year, versus a previous worst-case scenario of down 2.5 percent as companies cut their inventories and recession risks linger in both the U.S. and Europe.
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Maersk officially has the volume expectations falling by 1 percent to 4 percent this year, versus a previous forecast of a gain of 0.5 percent to a 2.5 percent decline.
Maersk’s second quarter earnings report noted “no sign of a substantial rebound” in second-half volumes.
“We had expected customers to draw down inventories around the middle of the year, but so far we see no signs of that happening,” said Maersk CEO Vincent Clerc said during a media briefing. “It may happen at the beginning of next year.”
The ocean carrier’s report suggests the holiday season could disappoint if consumers are still worried about arecession.
Christian Roeloffs, CEO and founder of container logistics platform Container XChange, told Sourcing Journal that he didn’t expect shipments to pick up for the August-October peak shipping season.
“If there was [an uptick], we would have seen it already. There’s not a significant uptick in demand. There’s not a significant uptick in prices,” Roeloffs said. According to Drewry, the Aug. 3 composite World Container Index (WCI) has plummeted 73.4 percent to $1,761.33 per 40-foot container when compared with the same week last year.
Roeloffs’ observations mirrored Kuehne + Nagel CEO Stefan Paul, who said in a July earnings call “there is no peak season to be expected in 2023,” citing “no signals either on air or sea.” Unlike Clerc, Paul sees end-of-year volume potentially improving, noting “a potential to return to a positive year-on-year volume growth versus easier comps in the second half.”
Maersk noted a 6.1 percent decrease in the number of containers loaded onto ships between April and June compared to the same period last year, and a 51 percent decline in average freight rates. On a sequential basis, it reported a 15 percent drop in quarterly rates.
Despite the disappointing container volume, Roeloffs believes freight rates are responding to supply versus demand.
“Each of the carriers [has] been very strict in capacity discipline,” Roeloffs said. “You’ve had port disruptions, first on the U.S. West Coast and now on the Canadian West Coast, that have really restricted capacity, further allowing shipping companies to increase prices.”
Though collapsing volume isn’t good news for holiday, the current environment supports shippers looking to lock in long-term contracts.
“If they have something to ship, then now is a good time,” Roeloffs said.
Rates are up to start August, with Drewry’s composite WCI figures increasing 11.8 percent on a week-to-week basis.
Falling freight rates hurt Maersk’s top line. The company saw a 40 percent decline in revenue to $13 billion from $21.7 billion in the year-ago quarter. Ocean freight drove the weight of the decrease, with revenue falling 50 percent to $8.7 billion.
Underlying profit plummeted 84 percent to $1.3 billion, down from $8.6 billion a year ago. Earnings before interest, tax, depreciation and amortization (EBITDA) fell to $2.91 billion in the quarter from $10.3 billion a year earlier, beating analysts’ expectations of $2.41 billion in a Refinitiv poll.
The Maersk CEO didn’t seem overly concerned by the falling profits as the carrier cuts operating costs.
Within ocean freight alone, operating costs were 17 percent lower at $6.5 billion, driven by lower bunker costs (34 percent), lower container handling costs (14 percent) and lower slot charter costs (28 percent), compared to a year ago.
“The Q2 result contributed to a strong first half of the year, where we responded to sharp changes in market conditions prompted by destocking and subdued growth environment following the pandemic-fueled years,” said Clerc in a statement. Our decisive actions on cost containment together with our contract portfolio cushioned some of the effects of this market normalization. Cost focus will continue to play a central role in dealing with a subdued market outlook that we expect to continue until end year.”
With the cost cuts, Maersk raised its full-year guidance. It now expects EBITDA between $9.5 billion and $11 billion, up from $8 billion to $11 billion. It also expects $3 billion in free cash flow, up from the original $2 billion forecast.
